Debt Collector’s Suicide Bomb

This blog post is part of the Suicide Prevention Awareness Month blog tour in partnership with Debt Drop. If you are feeling suicidal, please call the National Suicide Prevention Lifeline at 1-800-273-8255 or text HOME to 741741.

 

In the waning days of the second millennium of the Common Era I found myself in Austin, Texas advising a hedge fund in the charge-off receivables industry. There was no way I could know that within five years I would be running my own hedge fund and then a second. There was no way I could foresee my responsibility in a suicide and the contemplation of my own.

It started in the most unassuming way. Via letter I was introduced to the charge-off receivables industry by a Tennessee hedge fund that used a Texas firm to handle their collections. The hedge fund put me up at a 5-star hotel on a PGA golf course. I wasn’t impressed by the largesse. I prefer more Spartan living even when traveling.

The charge-off receivables industry is a dirty business. Charge-off receivables are delinquent debt sold to a third party for pennies on the dollar. As an example, credit card accounts 180 past due require banks to either book a 100% loss on the account or sell the bad debt, whereas, they can use the sale price as a partial offset.

Credit card companies never lose. An account in default frequently brings 15% or more as “fresh” debt for the charge-off receivables industry. The debt buyer scrubs and grades each account. Some are slated for legal action, others for simple phone calls and letters.

Within an hour of buying a package of debt a LexusNexus report tells us everything we need to know on every account we bought. The report tells us where the debtor works, what bank accounts they have and balances, assets owned, and more. Armed with this information we let our dogs loose demanding payment. In short order many of these debtors have suit filed against them. I was called in for a reason. I know how to collect; to hell with the consequences.

Two years later I was burnt out due to the traveling. In my mind this would be the last I saw of the charge-off receivables industry.




Big Shot Hedge Fund Manager

Two years later one of the insiders I consulted with called. He wanted to start his own hedge fund in the charge-off receivables industry and he wanted me as a partner rather than advisor. After plenty of arm twisting I agreed.

Three years into our very own hedge fund throwing off a 28% average annual return my partner had a personal issue requiring him to leave the fund. A new fund was organized. Investors of the old fund could walk with their 89% gain or roll funds into the new fund where I was the sole manger.

There is a slight head rush to being the top dog at a hedge fund. I had ideas which could turn past performance even higher, as if 28% were not enough.

The Benevolent Debt Collector

Packages of debt can get large. I always dealt with less than fresh debt. We always bought from other third parties who already worked the debt. Buying straight from the bank is expensive. Older debt can be more profitable. Many times the debt we purchased was a nickel or less on the dollar. This meant $1 million bought $20 million face value of debtor accounts. Million dollar purchases were common.

So far the old and new hedge funds looked identical. My network of collectors and law firms around the nation were the same with new additions as I vetted them.

Once I got my feet set in the new hedge fund I discovered Dave Ramsey. I wasn’t an endorsed local provider (ELP) of Dave yet, but I loved what he was saying. It made so much sense and some of my tax clients and all of my hedge fund accounts could use this advice.

When debt packages were purchased I was curious who was on the list in my state. Periodically I’d see the name of someone I knew or a client. Clients showing up on the list were a conflict of interest so I sold those account to another firm similar to mine.

As I reviewed and scrubbed packages I started noticing patterns. One pattern included people who did fine with money all their life and then fell off the cliff. Another pattern included the same names showing up multiple times. If I bought three large packages this month of mixed bank accounts I might find some people listed five or more times. Somebody’s life went bad fast!

It’s a no-no in the debt collection industry to call a debtor if you are untrained; the rules are immense and the penalties for breaking them immense. I was the numbers guy, not a collector. But I felt my idea would benefit the debtor while spiking my returns so I did it anyway.

I bought large volumes of Dave Ramsey’s book The Total Money Makeover. Around this time I contacted Dave’s organization, was vetted and accepted as a tax ELP which allowed me to buy Dave’s book at a large discount. I bought boxes.




When the hedge fund bought a package of debt there could be 20,000 or more accounts involved. We bought packages on a regular basis. I scrubbed the accounts for special cases. I was looking for people who did well for a long time and had a life event that caused financial/debt issues.

I also looked for people with a lot of bad accounts. People with a large number of delinquent accounts were hard to collect from so I wanted to do a good deed.

I sent a copy of Dave’s book to select debtors in our files with a letter encouraging them to use the book to improve their current financial situation.

Later I would call these accounts. The rules require certain disclosures when you call to collect a debt. I never called to collect the debt; I called to encourage usage of Dave’s philosophy to get out of debt.

I informed these people they could resolve debt issues if they were serious about changing a few habits in life. Most of the time I got a story. There is usually a good reason why they failed and will keep failing.

The rest I reminded did not have to pay in full. It is common in the industry to pay less than the full amount to satisfy the debt. I encouraged people to work a payment plan to pay half the debt and have the rest charged off.

The goal was simple. If people were too far in to work their way out I would give them hope and a way back to normalcy. This was good for them and good for me. I paid a nickel on the dollar for this debt and if I collected even a fraction of the face value I made a huge profit.

Not What It Looks Like

My plan was working like a well oiled machine. Profits were up and I was helping people in an industry notorious for chewing people up and spitting them out.

One day a week I dedicated to calls. Many times the calls lasted much longer than anticipated as the debtor finally found someone to tell their story to who cared. Some weeks I called thirty people, some weeks only five. Either way I was making a difference and adding serious money to the funds bottom line.

Medical issues were a common problem with people who were good all their life and only recently had unpaid bills. Sometimes they even had insurance. It broke my heart. I took whatever time was needed to help them.

One day I called a debtor I sent Dave’s book to a few weeks prior. He thanked me for the book and explained his wife was dying of cancer. The doctors gave his wife a few days to a few weeks to live. He promised after he buried his wife he would start paying his bills again.

He had insurance, but the insurance did not cover an experimental procedure. He was willing to try anything to save his wife. They were only in their 30s.

The stress of his wife dying of cancer and the added burden of medical bills caused him to mortgage the house to the hilt and max out credit cards to cover medical bills. (The hospital would not proceed without payment.) He was in over his head and he still lost his wife. The next LexusNexus pull on the packages that included his debt showed his wife had passed away a few weeks later.

I ordered his account to be marked PIF for paid in full. I couldn’t collect from the man. I would not add to his burden and grief.

His accounts were still on file. Two months later a LexusNexus pull indicated he too had died: suicide.

My stomach turned. I couldn’t do it anymore. Something broke inside me that day. No matter how good my intentions I couldn’t do it anymore.

Most people dig their own debt hole and it is hard to feel sympathy at times, but many, many more also are deep in debt due to circumstances outside their control.

At the time I felt like it was my fault this client (and by now I felt he was a client, not a debtor account) took his own life.

It was early autumn, the time of year when I struggle with seasonal affective disorder. The shorter cloudy days dropped the curtain like never before. It was so bad I had the gun in my hand. I did not want to live anymore. Not in a world like this.

Finding Peace

I lived, of course. I eventually understood it was not my fault. It was still over for the hedge fund. It dawned on me I was part of the problem as a part of the debt collection industry. The industry is like a pit bull sinking in his teeth and never letting go.

My intentions were honorable, but misplaced. I thought I could solve someone else’s problems. It doesn’t work that way.

Debt is so caustic. It destroys so many marriages, ruins so many relationships and causes so much pain.

I came to realize people who created their own mess on their own still deserved an opportunity to get their life back, an opportunity the debt industry in uninterested in. The goal is to get you in debt and keep you there. They want your money, including interest. Interest is money paid where you get nothing in return. Sellers of debt have virtually no costs and keep all the profits. To hell with people and their families.

The hedge fund was wound down and disposed of. We didn’t do so well with the second fund. The 2008 financial crisis coupled with my wakeup call hurt results.

Responsibility

I beg you, if you are in the debt industry, consider the people you come in contact with. People who commit suicide are 8 times as likely to have debt issues. It can’t be a coincidence. You are the front line in protecting these people standing at the edge. You must never push them over. Ever!

And you, kind readers, you must be vigilant as well. You have friends, family and co-workers suffering under a burden of debt. Offer gentle words of encouragement. Maybe buy them a copy of Dave’s book. It does help. The Total Money Makeover is for people with serious debt problems. Readers here generally don’t have these problems, but people you know probably do.

If someone you know is distraught there is help. Call the Suicide Hotline at the opening of this post. Check the link to Debt Drop. There may be financial help available, too. Never allow anyone to navigate the darkness alone.

Finally, share this post. It might save a life.



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Keith Schroeder

17 Comments

  1. Andy on September 11, 2017 at 8:01 am

    Keith,

    I sent this article to my friend. He has a close friend who is in debt and currently suffers from depression and alcoholism because of it. Thank you for this article.

    • Keith Schroeder on September 11, 2017 at 8:33 am

      I talk about the hedge fund periodically, Andy, but neglected to say why I stopped. Now you know why.

  2. Mitchell on September 11, 2017 at 8:54 am

    Maybe not the best choice of title given today’s date…

    • Keith Schroeder on September 11, 2017 at 9:41 am

      @$#!, Mitchell! I didn’t even think of that while I was writing!

      I beg you, kind readers, to understand the context. No offense to 9/11 victims (or anyone) was intended.

  3. Wole on September 11, 2017 at 2:35 pm

    Debt collectors should show empathy to people in debts. If you ask anyone who is in debt, he will tell you that he doesn’t like the situation. If he has the money, he will gladly like to pay off the debt. Therefore debt collectors should not focus too much attention on the commission they are going to get. I believe they should be able to use their skills to guide people how they can be out of their debts. Their functions or roles should be more of guidance and counselling.
    Thank you for bring up this topic.

  4. Dan on September 11, 2017 at 5:10 pm

    “At the time I felt like it was my fault this client (and by now I felt he was a client, not a debtor account) took his own life.”

    I appreciate your empathy but two things bother me about your story. First, why would you feel it was your fault? You wrote off his debt during his darkest days taking away what was probably his second most pressing problem at the time. He most likely committed suicide due to depression over his wife’s death at such a young age. I’m not going to give you a layman’s psychiatric diagnosis but the whole business with mailing the Dave Ramsay books leads me to believe you had deeper issues related to your job and possibly other aspects of your life. It sounds like this was the straw that broke the camel’s back even though your other actions could have had more direct (negative) effect on other debtors.

    “I ordered his account to be marked PIF for paid in full. I couldn’t collect from the man. I would not add to his burden and grief.”

    The second thing that bothered me in your story is that it seems like you did not uphold your fiduciary responsibility to your clients by writing off the debt as PIF. How do you know your clients weren’t in dire straits and needed the returns from your hedge fund which you potentially lowered by writing off his debt? It’s easy to say you did the right thing by forgiving a soon-to-be widower’s medical debt but didn’t you have a legal, ethical and moral responsibility to collect all the debt you could on behalf of your clients? Even if all your clients were fat cat billionaires who could afford to lose 100% of their investment in your fund, you still had a responsibility. There may be more to the story which you did not mention in the post but as a hedge fund manager, you had a well-defined relationship with your clients which you seemed to have breached through your actions.

    • Keith Schroeder on September 11, 2017 at 7:43 pm

      Dan, a hedge fund manager (or corporate CEO) is allowed to do things that don’t always benefit shareholders or investors. Charitable contributions by a corporation or hedge fund doesn’t usually benefit the business, but it is the right thing to do. Maximizing profits may not be in the best interest of the investors! Warren Buffett always says to act as if what you are doing is on the front page of tomorrow’s newspaper. I think it is easy to see I did the human thing even if it didn’t maximize profits. Besides, I doubt profits or revenues would have been higher if I chose a more hard-nosed approach.

      Remember what I told the debtor. Many companies, including ours, settle for less than the full value of the account. The fund sacrificed maximum gains to get accounts settled, which probably maximizes gains.

      Finally, I was in close contact with my investors all the years I ran the fund. They supported my efforts. They, after all, are people with a heart too. They also saw the good we were doing was providing a better income stream. What I don’t mention in the post is another thing I noticed over the years: the suicide rate amongst the accounts we bought were higher than the national average by a significant margin. By helping debtors with accounts we owned was good for business. But when 2008 hit we fought a losing battle.

      • Dan on September 11, 2017 at 9:10 pm

        “Remember what I told the debtor. Many companies, including ours, settle for less than the full value of the account.”

        You marked it Paid in Full. You implied you received $0. You could have chosen not to attempt to collect and sold the debt off as you did when you found clients among your debtor lists. Furthermore, charitable contributions by corporations are usually vetted by the board. Not each and every dollar but the target aggregate amount and general categories. They are almost always publicized so that public goodwill (not accounting goodwill) can be generated. Your action was neither a charitable contribution nor did you say anything about publicizing it. I’ve never heard of a credit card company announcing they were forgiving $x of credit card debt because it is the right thing to do. They know their shareholders would be up in arms.

        “I think it is easy to see I did the human thing even if it didn’t maximize profits. ”

        What you did was transfer wealth from your clients to the deceased. In the end it may not have mattered. I don’t think you can say that with 100% certainty. I don’t know LexisNexis intimately but I don’t think it lists life insurance policies. His wife may have had an life insurance policy.

        If I seem harsh it is because I don’t like other people deciding what is or isn’t a good cause with my money and you seem to have put assuaging your misplaced guilt above the client’s financial return. What you were engaged in is called “Vulture Debt.” What did the clients expect with a name like that? Did they think they were spreading sunshine in people’s lives by having you engage in debt collection on notes bought on the secondary market? Obviously suicide is a tragedy and is no one’s goal but every time someone forgives debt, it means someone else is paying for it…typically a taxpayer, shareholder or account holder. Spreading it out over large pools lessens each individual’s share of the debt & pain but too often I find sympathy for the debtor to be misplaced and no more valid than the sympathy that should be extended to the taxpayer, shareholder or account holder. Everyone wants to be the nice guy. That’s fine but be a nice guy with your own money. How would you feel if your stock broker raised its commissions because they subjectively chose to forgive some clients’ margin calls but not others?

        I am digressing. The person’s suicide had nothing to do with his debt. You forgave it and he still killed himself. Frankly, I find it hard to believe many people will kill themselves over unpaid debt. Bankruptcy is common & well known. It’s not like the old days where you couldn’t escape your debt and it was inherited by your heirs. People kill themselves for the underlying reason that caused the debt. In your example, it is because of medical problems and subsequent death. Frequently people have unresolved issues resulting from trauma which manifest itself as out-of-control spending. You wrote “The suicide rate amongst the accounts we bought were higher than the national average by a significant margin.” I don’t think your were identifying causation but rather correlation.

        • RD on September 12, 2017 at 11:23 am

          “I’ve never heard of a credit card company announcing they were forgiving $x of credit card debt because it is the right thing to do.”

          Dan, go back and read this article. That’s essentially exactly what they do – once it’s “uncollectable” for them, they pass it off to someone else for cents on the dollar, allowing the people who accumulated the debt off “easy”, rather than garnishing their income or throwing them into debtor’s prison or whatever to collect every cent. At that point, from the credit card company’s perspective, it’s forgiven.

          Keith (or his hedge fund) bought that debt and turned it back into an asset of slightly larger value, but not nearly as much as the person actually owed. At that point, the rest of the debt was actually forgiven. And by taking a compassionate approach, he actually maximized the fund’s value by attracting these debtors (many of whom were good people) onto “his” side instead of forcing them to fight not to pay the debt at all (or worse, kill themselves so they didn’t have to). It’s a very interesting concept, and something the debt industry as a whole could probably do much more of. I for one hope someone like Keith is around to help me out should I ever fall off that cliff (and don’t kid yourself, it can happen to anyone).

          • Dan on September 12, 2017 at 2:45 pm

            Credit card companies don’t forgive the debt; they mark it off as noncollectable and sell the debt. If they sell the debt for 5 cents on the dollar, the 95 cents is written off as a loss or expense on their books. The debtor still owes 100% of the debt. That’s how Keith made money. Keith’s cost basis is the 5 cents on the dollar he paid for the $1 of face value debt. He had an ability to collect more than 5 cents is the profit.

            I can’t make heads or tails of your second paragraph. I think you are conflating his mailing the Ramsay books with his marking debt as PIF. I doubt anyone invested in the hedge fund expected Keith to recover 100% of the face value of the debt. It’s time consuming, expensive and ultimately unlikely to succeed. IIRC, if you can recover 10 cents on the dollar you are a superstar. Keith quotes 28% avg annual return so let’s say he is recovering 6.4 cents on the dollar. 6.4 minus 5 = 1.4. 1.4/5 = 28%. He spent 5 cents to make 6.4 cent in revenue or 1.4 cents in income. He probably recovered more than 6.4 because he had to cover the hedge fund expenses. By marking it PIF, he can’t even sell the debt off for 1 cent on the dollar or whatever amount. He says his clients were informed and fine with it. I believe him. I don’t think I would be fine if I had invested in the fund but I didn’t invest.

            My point in the comments is twofold – 1) the victim’s suicide doesn’t appear to be related to his debt since Keith marked it PIF and I wonder why he felt such guilt and 2) not everyone considers his actions so noble. It was well intentioned but I maintain that it was ultimately a wealth transfer from hedge fund investors to the debtor with little tangible benefit for the investor. In this case, his investors were ok with it. I think you’ll find many investors would not be ok with it. I guess at some level, this really gets to what does a person expect of their investment manager. I most certainly do not want my mutual fund manager writing off assets based on his/her own sense of compassion. Collecting less than the face value is not an act of compassion but a business plan that maximizes revenues while minimizing costs. Marking off debt as PIF when no attempt has been made to collect is an act of compassion at the expense of the investors.

            Although I don’t agree with his marking the debt PIF, I do like his idea of counseling the debtors. That came at a cost to Keith but then again the PIF came at a cost to investors. However what I like about it is that it attacks the root cause of the problem in many cases.

            If my sentiments aren’t clear after three long posts, I’ll never be able to articulate them.



  5. Cesar on September 11, 2017 at 5:31 pm

    Thanks for a great article. It must be hard to share this with internet ‘strangers’ but I am sure it will be helpful to a lot people. Keep up the good work. Also, no offense taken with title- most of your readers know you are not like that.
    Take care!

  6. RD on September 12, 2017 at 11:33 am

    Great article, and great work while you were in a bad business. I had family friends in a bad position – not even to the point where the debt collectors were calling (or not often at least), just where the debt was mounting and minimum payments were barely being made. These people knew that they were responsible for their own debts, it was just “so easy” to take the money. Plus no financial awareness of how bad it was getting until it was so bad that they didn’t see a way out. Then “screw it, in for a penny, in for a pound.” Impossible to overstate how many things in their life were affected by constantly living under stress, even if they got very good at pushing it to the backs of their minds and living one day at a time.

    Gave them Dave Ramsay’s book as well. Several suicide attempts later, I think maybe they’re seeing some light at the end of the tunnel.

  7. Trevor on September 15, 2017 at 10:34 am

    Dan,

    He chose to forgive a debt that was incurred by trying to save his dying wife. The debtor did not rack this debt up as a result of buying cars he could not afford, gambling away money he did not have or living recklessly. I believe anyone with a shred of compassion and sympathy would have done the same exact thing, I would have. It’s called discretion.

    Just because one account was marked PIF, doesn’t mean he failed in looking out for the best interest of his shareholders. To collect what I would imagine to be a very large sum of money from a man who was otherwise financially solvent, would be pretty heartless, considering the circumstances.

    You are looking at this from a black and white perspective, with no shades of gray. The shades of gray are the people such as this man who lost his wife then took his own life. And, if I have a problem with the fund manager forgiving people that incurred such debt under those circumstances, then I have the discretion of selling my shares.

    Thank you Keith for being a capitalist with a heart.

  8. Kandice on September 15, 2017 at 10:40 am

    Thanks so much for sharing this – I’m sure it must have been difficult to put the words to paper.

    You and several other PF bloggers have lately been posting on an important topic – the people behind the investments we make. So often, when we look to make investments, we see only the opportunity, and fail to see that people on the other end may be hurting for it. One blogger brought up the morality of LendingClub and other private loan systems, pointing out that most of the people who take out these loans are probably financially struggling already (otherwise, they would have had the ability to get lower interest loans from a bank or credit union), and that by investing in private loans, we are perpetuating a system that can sometimes prey on the desperate. It really made an impact on me.

    Keep up the great work – you’re making a difference!

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