This is the latest installment of our series on the new American economy,“How the Deck Is Stacked,” reported in conjunction with Frontline and PBS NewsHour.
Tony and Laura Burbatt live in Midlothian, Illinois, a town of 15,000 residents about 25 miles south of Chicago.
The Burbatts own a small, thousand-square-foot home, but seven people live there — plus two dogs. Buying a larger home is probably not on the horizon any time soon because the Burbatts are two of the 77 million Americans with debt in collections.
Laura Burbatt recalls when debt collectors started calling the house.
“I remember not answering the phone. ‘Just don’t answer it, just don’t answer it.’ We would get those calls a lot,” Laura said.
Tony and Laura are in their early 50s and worked for the local school district when their second child, Michael, was born. He’s autistic, so he needs extra care.
“We made a decision that it was more important for her to stay home and raise the kids than it was to have the money,” Tony said.
As the family continued to grow over the years, Tony’s paycheck alone wasn’t enough.
“When we had to, we would take a cash advance against a credit card to get by, and then housing started to go up, so you were building equity pretty fast at that time,” Tony said. “We bought in at $67,900, and at the top of the market, right before things collapsed, it was $210,000. We got into this cycle where we would do what we had to do to survive. When it got too bad, we’d refinance the house. And then you pull money out of equity and that would buy you a couple of years. And then, when that started getting thin, cash advances again — whatever you had to do to survive. And then when that started to look really bleak, we would refinance the house again, pay off cash advances. And that mountain kept getting a little higher with every time.”
Laura recalls how easy it was to keep gaining new credit.
“I remember when I first started working and applying for charge cards. It became this contest with me and all my friends, ‘Oh, did you get this one? Did you get this one? Oh, did you get that one?’ And when it came in the mail, you were like, ‘I got another one!’ It was so exciting. And then, you get the bill and go, ‘When did I do that? I don’t even remember doing that.’”
Tony kept the family’s financial troubles away from Laura for a while, but it eventually became too much.
“I came to her one day and said, ‘We gotta sit down and we gotta talk because …’ I’m good at handling pressure, but it got to the point where I just didn’t see a light at the end of the tunnel anymore,” Tony said.
At that point, the Burbatts owed hundreds of thousands of dollars.
“Initially, when we first started talking about it, I wanted to file bankruptcy,” Tony said. “Because I wanted the easy way out. Laura didn’t see it the same way morally.”
“It just didn’t feel like the right way to me,” Laura said. “I felt like we should pay it all back.”
One out of three Americans has at least one debt in collections. That includes credit card debt, car loans, medical bills, unpaid parking tickets or even unpaid gym memberships.
The national debt comes up all the time in politics, but what the government owes might be less important to the economy than what people personally owe. Today, Americans owe more than $11 trillion worth of debt. Roughly $830 billion of that is delinquent, unpaid or in collections.
Amir Sufi, economist at the University of Chicago’s Booth School of Business and co-author of “House of Debt” said, “Public debt is really a sideshow relative to the private debt explosion that we’ve seen over the last 20, 30 years.”
“The rise in the household debt to GDP ratio is a common metric we use: How much household debt relative to the output of the economy we have,” Sufi said. “That’s been steadily going up since the mid-1980s, and then skyrocketed from 2000 to 2007.”
“The two periods we had in the last century when you saw sharp rises in debt are right before the Great Depression and right before the Great Recession. If you look at the long history of the last century, the two times where private debt burden seemed out of control are exactly when we saw severe economic downturns, so that’s where we are I think.”
Wages have remained stagnant over the past few decades, but borrowing money is now a lot easier — even for Americans who shouldn’t be borrowing in the first place.
Why do lenders offer money to people who can’t guarantee they can pay it back? Sufi said that doesn’t always matter.
“Oftentimes, they’re not the ultimate lender, they’re just originating the loan, they’re selling it for a fee, and so they’re not so interested in whether the person can pay or not.”
That might not sound like an effective way to make money, but Dave Ludwig, president of the National Loan Exchange, has made a career out of it. He’s a bad debt broker, sort of like a real estate agent, but instead of working with clients to sell houses, he works with banks and other lenders to sell their charged-off debt. A charge-off is an account written off as bad debt.
By law, if an individual doesn’t start paying back a loan in six months, the lender has to declare it a loss. That doesn’t mean the debt gets erased, but the lender has three options:
1. It keeps trying to collect the debt on its own.
2. It hires a third-party debt collector to recover the money for a fee.
3. It can sell the debt.
That’s where Ludwig comes in.
Kai Ryssdal: Give me a hypothetical case study: Bank of America, Wells Fargo, they come to you and they say, "Dave, I’ve got $50 million in charge-offs that I want you to handle for me." Then what happens?”
Dave Ludwig: First I tell them, "I love you." [laughs] We request personal information on the debtors that make up that $50 million, financial information, and a synopsis of what’s happened to the accounts. What the buyers are looking for is how complete that data is. You can’t collect an account if you can’t find them. So, all of that goes into a machine and spits out a number of what we believe the price range is, the expected price range.
Ryssdal: Cents on the dollar. You guys figuring out, here’s $50 million of debt, and we figure that this is worth 4 cents on the dollar.
The companies that buy debt get it so cheap that even if people who owe debts pay a fraction of what they owe, they’re still making a huge profit — and those companies often turn around and sell the remaining debt to a smaller shop who picks at what’s left.
“There’s a market for anything in this industry,” Ludwig said.
There’s a market for “deceased accounts,” also known as dead people; “Chapter 7,” which are people who declared bankruptcy; and “out of statute accounts,” which are debts that are not legally enforceable anymore — but that “doesn’t mean it’s not collectible.”
The further down the chain, the less those debts are worth, but they’re still worth something.
“There’s things from a 20th of a penny. But if you have 100 million of that...” Ludwig said.
There are more than 300,000 people working in debt collection in the U.S., and 28-year-old Alice Hanners used to be one of them.
When Hanners graduated college a few years ago, she couldn’t find a job in graphic design, so she tried to get a job in whatever field she could find. In Buffalo, New York, that meant debt collecting.
“About 90 percent [of the jobs I saw] were in debt collecting,” Hanners said.
Buffalo has become a hub for the debt collection industry, and with other fields leaving the city, it provides a decent paycheck for workers with little experience.
“It’s a very weird position to be in, because you’re essentially asking people to pay for something they already own,” Hanners said. “You’re not offering them any kind of reward other than resolving their debt.”
Hanners said every morning she would get a list of names with phone numbers and the amount the people owed.
“I would say, on a slow day, I would do 20 calls per hour. On a really good day, like 60,” Hanners said.
Recently, the Consumer Financial Protection Bureau has been cracking down on the debt collection industry with new regulations meant to protect consumers.
“I think a lot of people just assume you call up and say, ‘Well, you can pay or we can send lawyers to your house,’ but there’s really nothing you can do if they don’t want to pay,” Hanners said. “So you basically have to either be a really good salesperson, or you just have to be nice enough that people feel bad and want to pay you. That’s kind of the angle I took.”
After a while, Hanners said the job became too much to deal with.
“I was getting bonuses because I convinced some woman — while she was sobbing on the phone with me because this was all the money she had — she just wanted to clear up the debt. That is $2,300 she needs, and I know what it’s like to drain my savings. Meanwhile, I’m getting a bonus check because of that. It’s a horrible feeling,” Hanners said.
Different states have different regulations for debt collection. If you’re calling someone in Georgia, for example, you must say the debt collection company’s full address during your greeting. Debt collection calls are monitored, and Hanners was fired after 10 months for violating different state rules.
Now, she’s scrambling to find another job to help pay off her own debts.
“I did and still have debt. My credit is terrible,” Hanners said.
She said her experience as a debt collector made her see debt differently.
“Even though it’s this debt that’s being held over their head, the company didn’t need all of it. They were willing to accept a much smaller portion of it,” Hanners said. “The company I worked for was willing to accept a much smaller portion than that in exchange for me doing the work. It stops feeling like real money and starts feeling, like evil.”
The Burbatts are still trying to make things work. The family got in touch with a nonprofit organization that helped them consolidate their debt, but things aren’t much easier for the family.
Their oldest daughter, Jamie, just went off to college this fall. Their youngest daughter, Olivia, will do the same next year. On top of that, their oldest son, Tony Jr., and his fiancee, Sam, have moved in — both saddled with student loans, trying to avoid the same struggle his parents have gone through.
“It’s a specter that’s kind of swinging in the back of your mind when you see in front of you what could happen. I hate to say that it’s an example of what not to do, but it kind of has been,” Tony Jr. said. “I just feel like in 10 years, hopefully, we’ll be in a better place, but we’re just going to have to sacrifice a lot of life along the way.”
This piece was produced by Marketplace’s Elections Desk: Tommy Andres, Caitlin Esch and Raghu Manavalan, with engineer Charlton Thorp. Photos and videos provided by Frontline and PBS Newshour.