Way back in 1976, famed physicist Stephen Hawking started a war when he argued that information could be permanently lost in a black hole, a violation of quantum mechanics. In 2004, he finally admitted he was wrong and paid off his bet – a baseball encyclopedia. But this isn’t over yet. It turns out that debt collectors use unverified and fragmentary data to decide what you owe. And some of it – we’re guessing here – is probably simply lost when third-party collectors buy debt. That’s right. To suck as hard as it does, the debt industry apparently has to break the laws of physics.

We all know that debt collectors are up to some seriously shady stuff. Until recently, this was something that people knew mostly via personal experience and intuition – facts and figures were a little harder to come by. But now, thanks to a recently released FTC study called “The Structure and Practices of the Debt Buying Industry,” we have some numbers to back up our gut feelings. Unsurprisingly, the report paints a depressing picture.

Let’s review why creditors sell debt. It’s mostly because it takes work to chase down a deadbeat. Sometimes it’s not worth the bother, and at least this way the creditor recoups some of the loss. So creditors bundle up individual debts into package deals and market these debt bundles to third-party collectors by phone, by mail and on the web. The packages might be organized by type, by the age of the debts or by the state in which the debtors reside.

Third-party debt collectors bid on them like they’re taking part in an eBay auction for a pair of shoes. Collectors usually pay about four cents for every dollar of debt, and that huge profit margin is why they’ll go after you for a mere 20 bucks. Once the bundles have been purchased, debt collectors get to indulge in all their favorite activities, like incessant phone calls, Facebook stalking, death threats and widow harassment.

The report points out that when third-party buyers pick up a package, important details are often overlooked or are just plain left out. Collectors are rarely given a breakdown of your charges and fees, so there’s a good chance that the total they’re demanding from you is inaccurate. And sellers don’t guarantee the accuracy of the details anyway. Buying secondary debt is actually a lot like buying second hand clothing – it’s sold “as is.” Moreover, debt collectors aren’t even required to verify the info they’re given. In fact, it actually costs money to verify facts, so they usually don’t.

Debt collectors have been quick to point out that only 3.2% of these debts are disputed each year. While this is true, consider that 3.2% is around a million cases. Who knows how many people cough up more cash than they owe or pay off debt that wasn’t actually theirs due to relentless pressure from debt collectors. The report also states that over half (500,000) of the disputed cases turned out to have been based on unverified information – meaning they were debts that couldn’t be substantiated. That’s an unacceptable number, a number that only adds validity to the growing argument that debt-buying and collecting practices must be reformed from top to bottom.

So what happens to your information once a debt sale is completed? Creditors don’t necessarily need to hang onto certain financial records after they’ve dissolved the relationship. We postulate, therefore, that at least some of it is destroyed.

The FTC’s continued focus on this issue bodes well for consumers, and now that we have some solid insight into what goes down, it’s hard to argue with the constant calls for reform that are coming from consumers. We’re not sure what the perfect solution to the problem is, but the Consumer’s Union has a few suggestions. Got a few of your own? Let us know in the comments. And goodbye, Dr. Hawking. The math was hard enough in the first place.