Zombie Debt

December 28, 2009

“Zombie Debt” refers to an old debt, usually a credit card debt, which has gone unpaid for a sufficient period of time that the original creditor has charged it off as a bad debt with the IRS and sold the account to another legal entity: the “Zombie.”

The debt buyer obtains an “assignment of debt” from the original creditor, but in most instances NOT evidence sufficient to win a court case. However, by filing a lawsuit and obtaining a judgment, either by default (when the defendant-consumer does not appear in court when summoned) or by the consent of the consumer, the Zombie converts an invalid debt to a judgment debt.  A judgment debt is legally recognized as collectible, by way of garnishment of wages or attachment of bank accounts, to name a couple of remedies.

Typically the Zombie-buyer pays five cents on the dollar for the assignment.  So, if the consumer allegedly owed Two Thousand Dollars on the account, the Zombie pays One Hundred Dollars for the right to collect the debt.

The sale of the debt may occur after the original creditor hired a collection agency to attempt to collect the debt.  Typically, the original creditor, the collection agency, (if any) and the “Zombie,” all report the debt to the Credit Bureaus, with an outrageous interest rate, late fees, attorney’s fees and the like, thus super-multiplying the appearance of the alleged amount due, to the consumer’s detriment.

After the sale of the debt, the “Zombie” begins collection efforts.  Such efforts are usually short-lived, and often a lawsuit quickly follows.

The reason people refer to this type of debt as a “Zombie Debt Collectors” is that these companies seem to never go away and stop stalking and frightening the consumer. “Zombie” may be a reference to the Movie: “The Night of the Living Dead,” because the debts never die.

Some examples of Zombie debt collection practices which violate the law are attempts to collect a debt that:  1) has been discharged in a Bankruptcy proceeding; 2) is shown to be a fraud account, as a result of a theft of the consumer’s identity; 3) has been paid in full; 4) is too old for  a lawsuit because the statute of limitations (statutes which limit the number of years a creditor may wait before filing a law suit) have expired.

There are many more examples of these immoral and unethical practices. The Zombie may sue a John Doe, but not the John Doe on the original account!

The companies who buy old defaulted debts are “Collection Agencies” under a federal law know as The Fair Debt Collection Practices Act, or, the “FDCPA” for short.

Unfortunately, many of the law firms pursuing these claims, although themselves subject to the Fair Debt Collection Practices Act, have long-standing, good reputations in the legal community.  These firms file lawsuits because the profits are so great, and because the Courts have not yet fully defined all of the practices which violate the law.

Rather than  purchasing the evidence needed for purposes of a trial, what, in fact, the Zombies’ typically have bought from the original creditor is: the alleged debtor’s social security number, last known address, date of birth, last known employer, bank information and the alleged amount due, and an “assignment” document.

What the Zombies’ typically do not possess is evidence that is acceptable and necessary for a court proceeding.  More often than not the Collector is not in possession of: the credit card or other loan application; the monthly billing statements; the record of purchases and payments; and proof of any mailings to the individual consumer (defendant) regarding changes in the “terms and conditions,” of the loan.  These are some, but not all of the documents needed in Missouri, at trial, to successfully obtain a judgment against the consumer.  In fact, in many instances, the original creditor has none of these records of the actual account to sell to the Zombie, because the original lenders do not wish to pay for storage of vast numbers of documents every year, nor personnel to do the work to store them.

When served with a summons to appear in court at the suit of a Zombie debt collector, many, if not most, consumers either allow a default judgment to be taken, or appear in court and consent to a judgment.

Many thousands of Missouri consumers are successfully sued every year.

Millions of Americans nationwide are successfully sued and forced to pay such judgments.

Those consumers who manage to settle the claim for less than the sum demanded, are unaware the debt will appear as a charge-off on their credit reports for seven years, and any amount the consumer does not pay to the Zombie will be reported to the IRS by the Zombie. Thus, the consumer is forced to pay state and federal taxes on the unpaid portion of the alleged debt.

Few consumers know that the Zombie should be counter-sued, under the FDCPA, by a knowledgeable consumer lawyer, in the Missouri Associate Circuit Courts, BEFORE the alleged debtor’s FIRST court date.

Under the FDCPA the consumer can recover $1,000 for violations of the federal statute, AND MORE IMPORTANTLY, the consumer’s attorney’s fees.

Attorney’s fees may be many times more than the statutory $1,000 damage amount, but the courts are authorized to and do in many instances award such fees.

Lawyers who are passionate about protecting consumers are struggling to make a living, because many, if not most, of their clients are also struggling in these difficult economic times.  However, there are lawyers who will work with their clients to create a stream of income for the lawyer and obtain great results for the clients.

In the end, we will all win, as the predatory lenders who created the current recession, and the Zombie’s who buy their “accounts” are defeated by Missouri consumers and their lawyers.

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