Collecting “zombie debt” is increasingly causing problems for consumers. Zombie debts are debts that have been discharged in bankruptcy, are beyond the statute of limitations for collection or have been previously paid or settled but which debt collectors are still trying to collect. Despite the fact these debts should be uncollectible, there’s a big business in selling and buying zombie debts. According to the Federal Trade Commission (FTC), these zombie debts are sold for an average of 4 cents on the dollar, with higher prices for debts less than three years old and in states where consumer protections are weak. Debts over fifteen years can be purchased for almost nothing.
Since these debts are purchased for pennies on the dollar from the original creditor, if a debt buyer is successful at collecting even a small portion of the debt it’s come out ahead. Collection of discharged debt is a violation of law but if debtors who have filed bankruptcy never assert their rights under the bankruptcy code a debt buyer can collect the debt without penalty.
Since most consumers never challenge a debt collection lawsuit, debt buyers can easily obtain a default judgment that converts an uncollectible debt into a collectible one. The time allowed to collect a judgment in Iowa exceeds the length of time allowed to collect a debt, so the default judgments frequently obtained by debt collectors breathe new life into their debt collection efforts. Debt buyers also frequently convince or trick consumers into restarting the statute of limitations by getting the consumer to acknowledge they owe the debt or make a partial payment or sign a new agreement to pay. A debt that was then uncollectible is suddenly made collectible for another several years.
Collecting zombie debt shouldn’t be so easy. There are laws against collecting discharged debts and debts that have been settled or paid. There are defenses available to lawsuits trying to collect debts beyond the statute of limitations or where insufficient documentation exists to support a lawsuit. But consumers need to assert their rights and defenses or the debt buyers will just continue profiting from their purchase of old debt. Contact us immediately if you’re facing the collection of a debt you’re not sure you owe.