U.S. to Hire Los Angeles Firms to Collect Past-Due Debts in Area

The Justice Department, announcing a nationwide program aimed at pursuing long-term debtors who owe a total of $83 billion, said Thursday that it will choose four private law firms in Los Angeles in coming weeks to try to recover past-due debts in the area.

The government estimates that it is owed $5 million to $6 million in outstanding taxes, student loans and other debts from people in Los Angeles alone, one of five cities targeted in the pilot program.

The program, which Atty. Gen. Edwin Meese III announced at a press conference, marks “a full-scale, coast-to-coast assault on deadbeats.” Budget Director James C. Miller III said: “We’re indicating to people who willfully refuse to pay their debts that there is no such thing as a free ride.”

In turning over many of these delinquent cases to the private sector for collection, officials are hoping that the law firms--which will keep about a third of whatever debts they collect--will devote more time and resources to pursuing debtors than the U.S. attorney’s office is now able to afford.

Combining Strategies

As part of the effort, law enforcement officials are piecing together strategies that have proven effective in various parts of the country. They are trying to collect from debtors in federal prison, pushing for toughened legislation that would strengthen collection procedures and allowing debtors to make back payments with credit cards.

While federal officials say that debt collection has risen substantially in the last five years, up from $202 million in 1982 to $357 million last year, they concede that outstanding loans to the government are still increasing more rapidly than back debts are collected.

The bulk of the $83 billion in delinquent payments--$51 billion--is owed to the Internal Revenue Service in back taxes. Much of the remainder consists of defaulted loans to farmers, students and small businesses.

In each of the five cities targeted in the experimental program, individual delinquent accounts of up to $25,000 will be turned over to private law firms. In addition to Los Angeles, the program will focus on Brooklyn, Detroit, Houston and Miami.

20 Firms Apply

About 20 Los Angeles businesses, ranging from one-man operations to 150-person firms, have submitted proposals to the Justice Department to win the collection jobs. There are about 1,100 local cases in the area where government efforts have failed to collect overdue debts, said Michael Snyder, of the Justice Department’s debt collection office.