“Zombie Debt” is a term that people in my business use for debt that is not legally enforceable. The debt generally has been either paid, settled, or discharged in a bankruptcy.
So how does it happen?
There an industry of debt buyers who buy debt — both good and bad — and try to collect it. The debt buyers usually purchase the debt at a discount. Because the debt was purchased at a discount, the debt buyer does not need to collect on 100% of the debt to turn a profit. The debt buyers then use the usual ways to try to collect the debt. They report it to credit agencies, they bring lawsuits, they make telephone calls, etc. Often times, consumers will simply pay the debt or settle it rather than fight.
To be clear, trying to enforce zombie debt is illegal. In addition to the obvious violations of state law, attempts to collect debt that has been discharged in bankruptcy violate the discharge injunction in the U.S. Bankruptcy Code. Reporting zombie debt also often violates the Fair Credit Reporting Act.
How should you handle this? Find a lawyer who handles consumer law who can help.
When one of my clients receives a discharge in bankruptcy, we check the credit report shortly thereafter to make sure that all the debts are listed as discharged in bankruptcy. If any are not, we demand that the creditor make the correction. We check the credit report again, and when debt appears, we bring an action against the creditor for the discharge violation. I handle these matters on a contingency basis. We can use similar techniques against creditors trying to enforce debt that has been settled or paid.
If you think that you might be affected by zombie debt and live in North Jersey or Central Jersey, feel free to contact me even if I did not handle your bankruptcy or the initial settling of the debt. If you live in another area, you might want to start with the alumni list of Max Gardner’s Bankruptcy Boot Camp to find an attorney to represent you. And if you want to read more about zombie debt, there are more articles here, here, here and here.