Knowledge / Security
"Zombie Debt" - Old Debt That's Hard To Kill
Just like the Zombie of Vodoo fame (a dead person who acts alive) “Zombie Debt” is debt that is ancient but still around. Until recently old debt was simply written off and filed away in boxes to collect dust until it was finally thrown out with the other trash. However, debt collectors have made a lucrative new discovery - there's money in old debt. A decade ago, few creditors tried to collect on old accounts figuring it wasn't worth the effort. Today, however, collecting on old debts is a rapidly expanding industry. Aggressive companies can buy charged-off credit card accounts from the original lenders for pennies on the dollar or less. Then, they use credit-scoring and other new technologies to identify which debtors are most likely to pay. The players in this "junk debt" market range from fly-by-night outfits to well-established companies funded by Wall Street investors. It's a business that's exploded in recent years as collectors discover gold in old bills. Debt buyers are expected to snap up $110 billion in face value of delinquent debt this year and that is twice what was purchased in 2000.
The collectors tell credit bureaus that an old debt is, in fact, a new one.
The amount that companies pay for bad debt depends on the type of account and its age. Debts that are delinquent but not yet charged off by the original creditor can be purchased for up to 12 cents on the dollar. Accounts that have recently been charged off fetch 7 to 9 cents on the dollar. Accounts that are slightly older and on which a collection agency or two has already taken a whack, 1 to 3 cents on the dollar. Years-old, out-of-statute debts go for a penny or less. The oldest debt is by far the cheapest, sometimes costing the collector 25 cents for every $100 in face value. If the collector can convince the borrower to cough up even $1, the company has made back its costs.
Where some are finding profits, though, others are spotting abuses. The Federal Trade Commission received more complaints in 2009 about third-party debt collectors than any other industry, and the number of complaints -- 78,838 -- was seven times higher than in 1999. These “Zombie” debt collectors play tough in order to squeeze anything they can from the debtor, and their methods lead to some of the worst practices the Federal Trade Commission has ever seen.
Among the worst practices are:
- Badgering consumers for debts they don't owe, that have already been paid or that were legally erased in bankruptcy court.
- Suing or threatening to sue over debts even though the statute of limitations has long since expired.
- Illegally "re-aging" debts on credit reports. The collectors tell credit bureaus that an old debt is, in fact, a new one. The goal is to extend the seven-year limit on reporting negative items and put more pressure on the consumer to pay the debt.
- Promising to delete a negative mark from the consumer's credit report in exchange for a token payment. Not only does the collector fail to follow through, but the payment can revive the statute of limitations and lead to a lawsuit. Even if the collector does back off, the unpaid debt could be sold to another company that might renew collection activity.
- Bait-and-switch credit cards. Some credit card companies have offered borrowers low-rate credit cards and then tacked old, charged-off debts -- often purchased from other lenders -- onto the balance. The card issuers typically insist they disclosed that the old debts would come with the cards but the borrowers say no such disclosure was made.
- Verbally abusing and/or harassing consumers. People have reported being cursed, berated and called repeatedly despite requests to stop -- all of which are violations of federal laws.
Consumer advocates say this is exactly the kind of behavior Congress and state lawmakers were trying to prevent when they put curbs on collection behaviors such as statutes of limitations, the seven-year credit reporting limit and prohibitions against abusive collection practices. Even the smallest payment can revive the statute of limitations in some states, leading to more aggressive collections and lawsuits. Even acknowledging that the debt is yours can restart the clock in some jurisdictions. In the past, paying an old debt potentially could wreak havoc on a consumer's credit. Such a payment could update a delinquency so that it looked more recent and took a heavier toll on a credit score.
In order to understand what the DNS Debt Settlement Program can do for you it is important that you understand the problems “Zombie” debt can cause you. We at DNS are well aware of these problems and in settling your debt we have the advantage of knowing something about the history of your debt. If you have put any of this type of debt in the Program or a debt like this suddenly appears while you are in the Program, be sure to advise us of this fact so that we can either settle it for you or advise you as to how to get rid of this debt.
This article was created by Debt Negotiation Services, a Financial Wellness company dedicated to helping people get out of debt and secure their financial future.