At some point, if it believes it will never be repaid, the original bank that makes a loan will sell it to a debt collection company. The loan will be bundled with numerous other ones in the sale, and the price will be a fraction of the total value of the loans. Because of the small price the collection company paid for the debt, it only needs to successfully collect on a fraction of it to make the transaction worthwhile. Such is the game of debt collection.
Sometimes, though, these debts aren’t actually valid. They were paid down, settled, or even discharged in bankruptcy. Frequently, the sole information the collector bought was a name, an account number, and a balance. This debt is called “zombie debt” because it’s no longer valid, but the collection agency is calling the former debtor anyway. The debt has been brought back to life to torment the living.
Though the debt is a zombie, the collection agency will try to enforce it anyway, starting with phone calls, ending with lawsuits. The collection agency hopes that the debtor will conclude that the cost of defending the lawsuit is greater than the value of the debt, and the debtor will choose to pay.
If this happens to you, the first thing to do is call your lawyer. Often a phone call from an attorney will cause the debt collector to back down. If you are sued, act promptly, but know your defenses. Many zombie debts have long passed their statute of limitations, meaning they’re unenforceable, and since they’ve been paid off, you can argue that the collector has failed to state a valid claim.
Next, you can assert all your own counterclaims against the collection company, including the Fair Debt Collection Practices Act and Fair Credit Reporting Act. These laws sometimes protect debtors by giving them punitive damages to help defray their attorneys’ fees. If you discharged the debt in bankruptcy, it’s a violation of discharge, and your bankruptcy attorney can return to the bankruptcy court and ask for a contempt order against the collection agency, which may be required to pay attorneys’ fees as well.
Zombie debt doesn’t strike often, but when it does it’s very frustrating, and an experienced New York bankruptcy lawyer can help.
For more questions about consumer debt, zombie debt, bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced fair debt collection practices act Bruce Weiner for a free initial consultation.