Wednesday, November 21, 2007

Old Debt Never Dies

For those vindictive lenders, this is a chance to savor the schadenfreude (not that there are any in the Prosper lending community who would be vindictive. No, none at all). For borrowers, this is another indicator that bad debt can haunt you for a long time to come.

In a financial version of Night of the Living Dead, debts forgiven by bankruptcy courts are springing back to life to haunt consumers. Fueling these miniature horror stories is an unlikely market in which seemingly extinguished debts are avidly bought and sold.

The case of Van Rathavongsa illustrates how canceled debts regain vitality. The Raleigh (N.C.) factory worker pulled himself out from beneath a mountain of bills by means of a bankruptcy proceeding that wrapped up in 2002. One of the debts the judge canceled, or "discharged," was $9,523 Rathavongsa owed to Capital One Financial, the big credit-card company. But Capital One continued to report the factory worker's discharged debt to credit bureaus as a live balance, according to documents filed in U.S. Bankruptcy Court in Raleigh.


pninen said...

Amazing how debtors find things to cry about. The bank made an error. Folks, this ain't news! Banks make errors all the time. The rest of us deal with them. Some grab reporters and cry.

One mistake the bank made was to lend to this loser.

Mike said...

Without debating the merits of the bankruptcy system and just accepting it as is, there is reason to believe that companies are finding financial benefit in playing fast and loose with the law. As much as I detest those who walk away from their obligations, I also hope there's something not nice waiting for companies who pray on the most vulnerable.