by Russell DeMott, Charleston Bankruptcy Attorney

I’ve been thinking of some of the bizarre things I’ve seen creditors do lately.  You’ll find a lot written about abusive creditors, mean creditors, heartless creditors, and law-breaking creditors here at Bankruptcy Law Network.  But what about stupid, self-destructive creditors?

It’s obviously bad to violate the Fair Debt Collection Practices Act or the Bankruptcy Code’s automatic stay, to be sure.  But while abusive creditor practices are bad, they’re not necessarily stupid.

What’s been puzzling me lately is some of the downright stupid, self-destructive behavior engaged in by creditors.  It seems to be going on in epic proportions here in the Charleston, South Carolina area.  And I have a feeling it’s probably an issue in other parts of the country.

Why do credit card companies push their customers into bankruptcy by refusing to work with them?  Why is it so hard to get that auto lender to put those one or two payments on the back of that loan?  (They know if they repossess the car, they’ll have a huge loss, after all.)  Why is getting a mortgage modification–even a teeny weeny modification–like asking for a kidney?  And my list of questions goes on.

Why is it creditors behave this way?  It’s like playing poker with someone who thinks he’s holding five aces–with every hand.  Why is it lenders are so unfamiliar with loss mitigation?  Why do they assume that if they plow forward things will turn out all right when their collateral has grossly depreciated–or when they don’t even have any collateral?

My leading theory–and I’m open to other ideas–is that loss mitigation is not taught in business school.  Students learn marketing, product development (and boy can banks develop new products!), finance, and management.  But loss mitigation is simply ignored–at least until the last couple of years. It’s a grand illusion lenders labor under, and it has horrible consequences for both the creditor and the debtor.  Let’s hope loss mitigation 101 gets introduced to business school in the near future.