October 31 – Halloween – conjures up visions of ghosts, ghouls and other fictional monsters; however, a non-fictional monster, the zombie-debt collector, exists all year around. The typical zombie-debt collector is a purchaser of debt who preys on unsuspecting consumers. Consumers need to be prepared to defeat the claims of these monsters.
Zombie debts arise from unenforceable or dead debts. The debts may be unenforceable against consumers because the debts never existed, as in cases of mistaken identity or identity theft. Similarly, the debts may be unenforceable by operation of law, as in cases where the debts have already been paid or discharged in bankruptcy. Additionally, in many cases, zombie-debt collectors may seek to collect old or stale debts that are time-barred because the limitations period for collections has passed.
Zombie-debt collectors resurrect debts by obtaining judgments (often default judgments), making settlements or persuading consumers to acknowledge or pay a portion of the debts. The judgment or settlement creates a new obligation for the consumer, while partial payment or acknowledgement of a time-barred debt can, in many states, restart the time period for collections.
Often the zombie-debt collector is either a debt buyer or works for a debt buyer. The growth in the pursuit of unenforceable debts has accompanied the dramatic growth in the debt-buying industry since the 1980s. Debt buyers typically purchase large portfolios of debt, paying approximately four cents per dollar of a debt’s face value and in return receive little documentation about the original debt or about the dispute history associated with a debt. The information received by the debt buyers may be inaccurate. Additionally, debts may be sold multiple times, with each subsequent buyer obtaining less information. As a result, it is not too surprising that debt buyers may seek recovery of debts from the wrong person or for the wrong amount. Cases have been reported where debt buyers have even sold debts that they have already collected. Consumers who have resolved a matter with one debt buyer may have to restart the dispute process when the debt is resold.
Consumers should take the following steps to avoid the zombie-debt trap:
- Avoid acknowledging the existence of debt or paying any portion of an alleged debt unless the debt is a valid, non-time barred debt.
- Demand documentary information about the debt, including documentation that reflects the original owner of the debt and any subsequent transfers of the debt to help confirm whether the debt collector has authority to pursue the alleged debt.
- Demand an itemization reflecting the original amount owed, all charges added, and all payments credited, including the dates of payments to help determine whether the debt is time-barred.
- Check your credit reports on a regular basis to ensure that the information contained is accurate, and dispute information that is not accurate.
- Avoid default judgments by seeking legal advice and responding to notices of lawsuits.
- File a complaint with the Consumer Financial Protection Bureau against debt collectors who harass or abuse you or make false, deceptive or misleading representations about unenforceable debts. The CFPB will seek a response from the debt collectors and will provide a status report regarding the complaint.
Halloween is one day when it’s acceptable to feed candy to the demanding monsters, but we need to be vigilant throughout the year to avoid feeding the zombie-debt collectors.
Neil Sobol is an associate professor of law at the Texas A&M University School of Law as well as director of the school’s legal analysis, research & writing program. Professor Sobol has extensive experience in private practice, focusing on consumer protection and bankruptcy work.