18 Oct How Debt Buyers Turn Zombie Debt into Valid Claims
Several of my Bankruptcy Law Network colleagues have written about the scourge of “zombie debt.” This colorful name applies to very old debt that is purchased by a debt buyer at pennies on the dollar. The moniker “zombie” refers to the fact that usually the statute of limitations for collecting this debt has expired.
In other words, a debt buyer purchases old accounts – often credit card debt – that may be 10 years old or more and then initiates collection efforts including phone calls and even law suits. Debtors, not knowledgeable about statutes of limitations, often do not realize that the collector has no rights whatsoever. More aggressive debt buyers will file suit against a debtor on one of these old debts hoping to get a default judgment. Did you know, however that a clever debt buyer can use the law to bring zombie debt back from the dead?
If you are sued on a very old debt and you do not respond, the debt buyer may get a default judgment, thereby turning an uncollectible debt into a valid and current judgment that can be used to garnish wages and bank accounts. Once a judgment is entered, it may be too late to challenge the underlying debt.
Another tactic used by zombie debt buyer is to use telephone collection harassment to coerce a debtor to make even a small payment on the old debt. The problem: in some states, if you make even a token payment on an old debt, that payment may revive the zombie debt and eliminate your option of raising the statute of limitations defense in a subsequent lawsuit.
It also appears that zombie debt is here to stay. A recent article in the New York Times noted that
the debt collection industry has undergone a transformation in the last decade. Credit card issuers, health care providers and cellphone companies now routinely sell debt that they deem uncollectible to debt buyers, who then either try to collect it themselves, turn it over to a collections law firm or sell it again.
An alert lawyer should be able to spot stale debt that is beyond the statute of limitations for collection. But a lawyer can only help you if you call on us. So if you start getting phone calls, letters or a lawsuit about a debt that is many years old, do not assume that the bill collector will voluntarily back off or that the clerk of court or judge will help you. Do not sign anything or make any payments without first calling a lawyer in your area.
Most consumer bankruptcy lawyers will speak to you on the phone for no charge and will review documents for a minimal fee. Most larger cities have local bar associations and lawyer referral panels. Take advantage of these free and low cost legal resources and avoid becoming a victim of the zombies.
by Jonathan Ginsberg, Sandy Springs, Georgia
Jonathan Ginsberg, Esq.
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