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Will bankruptcy bring a collection agency back to square one?

Attorney P. Scott Lowery opened a collection agency in 1994, naming it Collect America Ltd. As a proactive step to grow the business, he subsequently started up a law firm franchise.

Lowery’s company purchased past-due debt from banks, credit card companies and other lenders below face value. From there, franchisee law firms were assigned those accounts to collect. For back-office support from CollectAmerica, franchisees received a fee after sending collected money back to the headquarters.

In 2005, KRG Capital Partners, a Denver-based private equity firm, acquired the collection agency, renaming it SquareTwo Financial in 2009. KRG also raised $475 million in a bond issue.

In spite of those efforts, SquareTwo was mostly unprofitable. Net losses plagued the company from 2009 to 2011. While 2012 and 2013 showed small profitability, SquareTwo was back in the red by 2014 and reported its largest net loss in 2015, $117.7 million.

After trying to restructure outside of bankruptcy and failing to secure a buyer, the collector of their own purchased debts filed for Chapter 11 bankruptcy with $460 million in liabilities and $311 million in assets.

SquareTwo blamed increased regulations and costs of past-due debts. However, the company also faced multiple class action lawsuits combined with consumer complaints involving their collection tactics.

Operations that include a 60,000 square foot office housing 200 employees will close by year’s end. SquareTwo is seeking to sell the business to another collection agency and use those proceeds to pay off selected creditors while winding down operations.

For now, P. Scott Lowery serves as a senior advisor to the company he founded and continues to operate his own namesake law firm.

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