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.

“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 債務重組 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.