How does a creditor know if someone's working again?
December 10, 2011 2:39 AM   Subscribe

I've been volunteering lately with a bunch of people with financial difficulties, and I'm wondering, if a major bank sort of unsecured creditor chooses not to sue someone because they're uncollectible for a non-permanent reason (like unemployment), how do they find out again that the person is working to sue them?

It's a church thing and we're trying to refer folks off to do bankruptcy when possible, but the places around here that help people in need generally won't file for someone who's currently uncollectible, leaving a lot of people worried that they're going to get hit with suits the moment they find a job. I'm not really concerned about specifically how to handle advising them--it's outside the scope of my role and again, we're referring people so I'm presuming they'll get helped as soon as it's needed--but it did leave me wondering: Before any lawsuits, if you haven't given them the contact information, where would a creditor get information on your new employment? I've never had an employer show up on my credit report who wasn't someone I'd put down for loan information, and I'm not sure what else is public information, or what other sources they might use.

Looking here for something a bit more concrete than "they could probably track you down based on X" kind of stuff; I know I can Google myself and find out a fair amount of info, but I'm having a hard time imagining employees at Bank of America or Chase sitting around doing searches to see if anybody they've charged off has a new employer on Linkedin.

I always figured before that creditors just got judgments as a matter of course, but it seems like a lot of people I run into, that isn't the case, and I'd like to understand more about how the system works.
posted by gracedissolved to Work & Money (4 answers total)
At my job, in my state (NC), we're required to file a new hire report to the state every two weeks with the information of all the new employees hired since the last report (name, social security number, address, that kind of thing). I'm not sure exactly what happens once it's been filed, but the state somehow disseminates that information to child support agencies and the tax bureau, and we frequently get child support orders and tax garnishment orders very quickly after hiring someone. I don't know about private creditors, whether they get access to that information, though I wouldn't be surprised if there was a way for them to periodically review it and match it against their records.
posted by heyheylanagirl at 3:53 AM on December 10, 2011

Since you are trying to provide help to people without giving legal advice, you cannot go too far. The best information to give would be 1. the names of a couple of bankruptcy lawyers for future reference if they need it 2. the recommendation to contact one if they ever receive notice of a garnishment, and 3. assurance that creditors cannot take their entire paycheck. They can be directed to informational sites such as Wikipedia's entry on garnishment or Nolo's page on Debt and Collection Agencies.
posted by megatherium at 12:28 PM on December 10, 2011

Anecdotally, unsecured creditors have one key source of data: the debtor's credit report. Even when a report is frozen (that is, it can't be pulled for new sources of credit), an existing creditor can still do "account reviews" and see an abridged form of the report. This applies to any collection agencies that have purchased the debt from the original creditor. Both of those types of companies will routinely pull review reports and watch to see if the address, telephone number, or employer section of the report changes or has additions. These review reports also show a portion--depending on the bureau, it's 6 months to a year--of the "visible to others" list of credit report requests. If a collection company sees a recent pull, it may serve as a tip-off that the debtor is Doing Something(tm) and has money again.

If the debt is substantial (usually several thousands of dollars) and has been farmed off to a collection agency, those companies do have people who are sitting around checking the various social networking sites. Who gets "watched" and for how long depends on a variety of factors--amount of the debt, recentness of the debt, whether the collector has anything else to do that day, if your client's file just happens to be chosen randomly from the stack for a new person to be trained on, etc--that aren't easily predicted.
posted by fireoyster at 1:11 PM on December 10, 2011

It's a church thing and we're trying to refer folks off to do bankruptcy when possible,

I really think this is risky and could even potentially violate the law in your jurisdiction. In my state financial advice has to be given by state-licensed professionals.

What you should be doing is referring people to a non-profit credit counselor. Determining whether people should or should not file bankruptcy is half their job. Now, in a sense they have an interest in getting people to pay their debts -- they're funded by the big creditors -- but they also have access to tools that can, for instance, use a lump-sum payment system and reduced interest rates, which may be all someone in a temporary bind needs.

(I'm also of the opinion, from some personal experience, that filing is not the end of the world people think it is, and living without a good credit score is a lot easier than most people expect.)

how do they find out again that the person is working to sue them?

Well, you don't need to be working to be sued. It is perfectly legal and in sufficient cases worthwhile to sue someone, obtain a judgement, and just sit and wait until they are making money again and can be garnished.

Really, though, the more realistic way to interpret collection behavior is that the original creditor sells the debt to a collector, for cents on the dollar, who then tries to collect for a set period of time (a year, six months, etc.). I suspect that such agencies have an effort budget for each account they are willing to spend, and when it's exhausted, they sort of give up for a while, maybe trying again toward the end of their ownership; after that they just sell it down the line to another collector for even less, as a way of squeezing water from a stone. The next place is lower-rent, probably ruder, maybe even less professional. And so this situation will continue, for as long as anyone keeps trying.

I had a really old, substantial debt in my home state, and while I was living elsewhere they pretty much gave up on me; within months of re-establishing my identity here, however, they sent me a new demand letter to renew the debt under state law. How they found out I don't know, but they probably have computers that scan address lists or something like that. Not a lot of effort. But that letter was all they did, too.

Anyway, my original point stands: if you don't have this industry knowledge in-house, e.g. some church member who knows the industry and can legally dispense advice, you're and they're much better off putting them in the hands of someone who can.
posted by dhartung at 2:47 PM on December 10, 2011

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