Happy Halloween!....The Rise of the Zombie (Debt)

As we celebrate Halloween, we should keep in mind that there are real zombies out there. So be careful. Of course, I’m not talking about bodies raising from the dead and eating brains. I am referring to “zombie” debts. Zombie debts are debt that should have long ago died but some how keep rising again from the the collection heap.

Zombie debts come in two forms. The first, is a debt that would be close to being uncollectible due to the statute of limitations. These debts are not being collected by the original creditor but by a third-party debt collector who has likely bought the debt for pennies on the dollar. The method of the collector is to restart the clock on the statute of limitations on the debt. Let’s say your state says a debt is no longer collectible after six years. That date runs from the last date you made a payment. You get a call from the “creditor” 5 years and 11 months after you made your last payment. The representative on the line will pressure you to make a payment immediately. I have heard of threats of jail, informing employers, and having children taken away by child services. They can’t do any of those things, but the point is to put you under enough pressure to make a payment, which will restart the clock on the statute of limitations. A debt that should die the following month is now alive for another six years and you have a very aggressive collector on your heals.

The second type of zombie debt, is one that is truly dead but that a collector resurrects long enough for you to make payments until you figure out you don’t have to. For example, I received a call from a former client who had made a payment to an old creditor post bankruptcy discharge. After she made the payment, she called to ask me if she had to make payments to the creditor. I reviewed her bankruptcy and it was clear that the debt had been discharged. When I explained that it was a debt she did not have to pay. She asked how she could get her money back. I told her she could request a refund but she was unlikely to get it. These collection firms a very hit and run. Once they get a payment, it will be hard to contact them, find the collection firm’s location, etc. Most of the time the amount collected, in this case $200.00, is not enough that the client will be interested in paying an attorney to pursue the debt.

The best course of action when a zombie debt arises, is to never give out information that would allow a creditor to start collection actions. If it’s a valid debt collection the collector will also try to collect by mail. At that point you can ask for verification of the debt, always by mail. The request should ask the amount of the debt, who the original creditor is and for proof of the third-party creditor’s right to collect the debt. You should never admit to owing the debt and DO NOT make payment. This will revive the debt. If you receive a lawsuit, don’t ignore it, and don’t assume the creditor can prove the allegations. Your failure to respond could result in a judgment against you. You are entitled to the same verification information once a lawsuit has been filed and if the creditor is unable to provide it, you will likely win your case.