Just when you thought it was safe... here comes zombie debt!!!
A client recently called me in a panic. He said he just got called by an attorney from a debt collection agency and they said they would file a lawsuit against him in 30 days if he didn't pay $3,000 he owed on an old credit card. However, they were willing to negotiate a settlement if he could make the entire payment by the end of the week. How nice of them.
They had quite a story. They said if he didn't settle the debt, it would be transferred to the original creditor who would file a lawsuit. And that my friend would be subject to further interest and penalties and attorney's fees and that they could garnish his wages. Scary.
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"What do I do?!?!?! Can they really garnish my wages?!?!?! How much should I settle for?!?!?! Will you negotiate this for me?!?!?!" he said.
I told him to take a breath and I asked him a few questions. I was able to discern that the last payment he made was in July 2006. That's pretty old debt. Sounds like zombie debt to me.
Who are zombie debt collectors?
It's important to know who these companies are and how they operate. Generally, zombie debt collectors (also known as debt scavengers or junk debt collectors) buy very old debt for pennies on the dollar from the original creditors who have long since charged off this debt. So any money they collect is worth it to them. By many definitions, the statute of limitations (i.e. the time within which a lawsuit MUST be filed) has already expired. If the statute of limitations has expired, the debt collectors have no legal right to any money from the consumer. So it's called zombie debt because it is "dead" debt that is brought back to life by these debt scavengers. Unfortunately, collecting zombie debt is big business because many consumers don't know their rights and want to protect their credit.
How do zombie debt collectors try to collect?
Having bought this debt, these companies try to collect any money they can by selecting consumers they believe will most likely pay them any amount of money. So how do they do it? First they scare you. They will make you believe they are attorneys even if they aren't, they will threaten to file a lawsuit, ruin your credit, seize your assets, garnish your wages, and put a lien on your house. Next, they will act like they are doing you a favor by accepting much less than they allege you owe, they will make harassing phone calls, they will they give you short time frames to pressure you into settling before you can consult an attorney or do any research, and they will lie. Sound dirty? It is.
The desire to resolve the issue and avoid further headaches is so strong that many consumers end up settling the debt even after they know its zombie debt. Just the threat of a lawsuit or wage garnishment is enough to compel consumers to pay hundreds or even thousands of dollars to settle the debt and protect their credit. This is what these debt scavengers rely on.
What do you do if you get a call from a zombie debt collector?
First of all-don't panic! Take the time to do some research and understand your rights. Read on for tips and guidelines to follow when dealing with these "debt scavengers."
Do not assume they are who they say they are and do not verify ANY information!
Who are these people? How do you know this is legit? Have you done business with them? How do you know it's not a scam? How do you it's not the result of identity theft? Ask them who they are and for contact information. And talk to them like you have no idea who they are or what they are talking about. They will try to get you to verify information. Do not give them any information and do not verify anything! And I mean ANYTHING! Remember, you have no idea who they are and they are calling about a debt you know longer owe. (See the "Do not acknowledge the debt!" section below.) Just get information from them, hang up, and then do some research first. They will try to use any information you give them against you. Warn other family members or roommates not to give them any information.
Do not assume that you owe this debt (or that they can prove it).
Just because a zombie debt collector is calling you, doesn't mean that you owe the debt. Don't believe for a second that the original bank or debt scavenger has all their paperwork and evidence together. Besides being barred by the statute of limitations, the debt could have been discharged in bankruptcy, or settled by agreement with the bank.
Remember the Robo-Signing scandal where bank employees signed affidavits without verifying any of the information in them? Financial institutions, including zombie debt collectors, can be sloppy and may never verify any of the information they have. After all, their goal is to get you to pay them anything and they have no intention of ever filing a lawsuit. They count on consumers not knowing their rights and hope no one calls them on it.
Can they prove they bought this debt? They need to prove that you lawfully owe this debt, that they lawfully purchased this debt, and that the debt was lawfully transferred to them. They would need to prove this in court if they filed a lawsuit, unless you ignore it and they get a default judgment against you.
Do not assume that they have the right person.
Most of the time, debt scavengers do not have current contact information. They have whatever information was on the account from years ago. They will then try to track down the right person. As you can guess, they often don't have the right person and are just fishing around. So even if you had a credit card from the bank they are inquiring about, it doesn't mean that they have the right person. This is another reason not to talk to them or give them any information.
Determine if the statute of limitations has expired.
I called the debt collector back on behalf of my friend and they tried to tell me that the statute of limitations runs from the date of the last activity on the account, which was when the original creditor charged off the debt. Statutes of limitation are laws that set the time within which a legal action must be filed, after which no legal action can be brought regardless of whether a cause of action existed. In other words, if you don't file a lawsuit within the time set by the statute of limitations, the court will not allow you to bring an action.
First of all, this doesn't make any sense, because the creditor would control the statute of limitations by waiting to charge off the debt. Could you imagine a creditor filing a lawsuit 40 years later because they hadn't yet decided to charge off the debt? In California, the statute of limitations begins to run on the date of default, which is the date that the consumer should have made a payment, but didn't. This puts the creditor on notice that it must take action to collect the debt. The statute of limitations is two years if there is no written agreement between you and your creditor. If there is a written agreement, the statute of limitations is four years. If the creditor obtained a judgment against you in court, the statute of limitations is 10 years, but can be renewed. Statutes of limitation vary widely from state to state, so you must check the laws in your state to determine the time limits applicable to your situation.
Even though it is a violation of the Fair Debt Collection Practices Act to file a lawsuit after the statute of limitations has run, the sleaziest companies file lawsuits anyway in the hopes that the consumer doesn't respond to the lawsuit and the collection agency ends up getting a default judgment against the consumer. This will then turn the previously uncollectable debt into very collectable debt. It is also important to note that although the statute of limitations prevents debt scavengers from filing a lawsuit, they are still permitted to try and collect the debt. However, many of their tactics violate a law called the Fair Debt Collection Practices Act.
If you have determined that the statute of limitations has expired, then this is clearly zombie debt. If you have determined that the statute of limitations has not expired, then this article is not for you. In either case, you may want to contact an attorney for further consultation and legal advice. Many attorneys offer a free consultation so you should take advantage. Search for an attorney that practices consumer rights, consumer debt, debt collection, debt relief, Fair Debt Collection Practices Act, or even bankruptcy in your area.
Do not make any payment whatsoever!
A favorite trick of debt scavengers is to hound you into agreeing to a payment plan and to immediately make a "good faith" payment of $10 or some other small amount. They will try to get your bank account number and routing information. This is a mistake! Do not make any payment no matter how small the amount or whatever they promise you. Do not negotiate. Do not make any deals. Do not agree to a payment plan. I think you get the idea.
Doing this will revive the debt, which is called acknowledging or reaffirming the debt. Even admitting that you owe the debt could be used against you. Often, it can be difficult for most people to say "no." Most people don't want to be "dead beats." So it is important to remember that you are not being a dead beat because you do not owe this debt.
So I called these debt scavengers back. They were very nice on the phone. I asked them for specific information about the debt they were calling about. Without admitting anything, I asked about the last transactions and transaction dates on the account they allege my client owes. Not surprisingly, the statute of limitations had expired. I advised them that it is a violation of the Fair Debt Collection Practices Act to file a lawsuit or even threaten to file a lawsuit after the statute of limitations has expired.
She said the statute of limitations runs from the date of the last activity on the account and that was when the debt was sold to the debt collection agency! They've got some nerve!
I asked them to send me a letter verifying this debt and stating when the statute of limitations ends. She said "sure" and took down my address and phone number. We haven't heard from her since, and probably never will.
If they think collecting from you is more trouble than it's worth, they'll move on to the next poor victim that doesn't know their rights.
Final Thought
I have heard banks talk about a moral obligation to pay the debt. Maybe to the original creditor (and that's a strong maybe), but certainly not to the junk debt buyer. If the original creditor or debt collection agency owed you money, but the statute of limitations had run, do you think they would pay you? This isn't about morality, it's about the law.
As consumers, the best thing to do is to know your rights. Please feel free to share this article with your family and friends so they can protect themselves and eventually put these zombie debt collectors out of business.
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