“Zombie Debt” Invades Consumer Credit Files
November 6, 2008
Did you know that during the last 10 years, collectors and factoring companies have been using ‘blackmail tactics’ and making millions in profits by collecting on debt that is not legally collectible? (“Zombie Debt”). The very premise of this violates consumer protection laws, most notably the Fair Debt Collection Practices Act [FDCPA].
How can this be, you say… Here’s how this lucrative, dirty little secret works. Let’s say that someone filed a bankruptcy that was discharged five years ago with 15 creditor accounts such as medical collections, credit card balances, etc. Professional debt buying firms, and factoring companies purchase the rights to this discharged debt through a court process for literally pennies on the dollar (who would even think to sell this, right?). Then they use the credit bureaus’ systems and sophisticated skip trace software to try and match-up the “debt” to the “debtor.” In many cases people don’t know this is going on until they try to qualify for a loan, only to find that a firm like LVNV has reported an open collection on their credit files.
When challenged with the credit bureaus, the collector simply updates the notation in the bureau record, causing further damage to the person’s credit rating. In many cases the “debtor” doesn’t have the time or expertise to fight the entry and instead chooses to pay the collector as a “compromise” to have the debt settled; even without valid proof being offered that the debt was legally collectible.
Here’s where things get really troublesome. If this “Zombie” debt is not properly settled or proven to be invalid, the collector makes additional profit by selling the same account to another collector, who in turn attempts to do the same thing; and this terrible cycle repeats itself again while the “Zombie Debt,” if not handled properly, never dies.
Dave Sperline @ Eukopia Credit Solutions
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