Tuesday, February 12, 2008

Zombie Debt

I'm back, well rested and a little tan :) The wedding was great and the trip was a lot of fun. I went cave tubing in Belize, and snorkeled in Cozumel. My friend's wedding was in Key West, which I've never been to before, and it was cool because it took place at Robert Frost's cottage. Apparently he spent winters there for 12 years. I guess back then, for a New Englander, that was the road less taken.

Speaking of roads less taken, our old credit card debt, real or otherwise, might be making a detour. Newsday recently had this interesting article, Consumer watch: Haunted by 'zombie debt'. It about how old credit card debt can rise back from the dead and haunt you-- even disputed claims. Credit card companies sell off delinquent accounts to boost their quarterly earnings. Then the collectors sell off this debt to other collectors (because our financial markets seem to love selling bad debt to each other for their own profit) to the tune of $100 billion annually. Sure, some of the debt is genuinely delinquent. But a lot of it is also disputed claims, identity theft, and just straight up mistakes. The amount of times these accounts change hands for profit, there is little incentive to validate each claim. The other frightening catch, they like to attack people with decent credit ratings-- they're more likely to pay up.

    When the debt became more than a decade old, it might have been sold for pennies on the dollar, with a successful collector making big profit. At a penny on a dollar, for example, a $10,000 debt would cost a collector just $100. So even if the collector managed to get paid just a few hundred dollars of that debt, the profit margin would be substantial.

    The consumer does have protection: Six years after a debt goes into default, the collector can no longer sue to collect. And after seven years, the debt can't be shown on a consumer's credit report.

    But efforts to collect old debt are legal, as long as the collector doesn't threaten to sue or report the debt to a credit agency. Consumers who have repaired their credit may feel they need to pay the old debt to avoid a credit blemish.

    "Technically, debt never dies," said Richard Feinsilver, a bankruptcy attorney in Carle Place. "People can be haunted for the rest of their lives."

Not only that, if your debt is "forgiven"-- don't be surprised to receive a 1099-C form in the mail; yes, they even make you pay taxes on the "forgiven" part of the debt. You can learn more about the zombie debt industry here and learn how to fight back here.


Esme said...

Welcome back!

Scary about the zombie debts. On a related story, we just heard about this guy who has a lean on his house because he bought a washer & drier set on one of those don't pay for 12 months plans. He paid it after 12 months but the store didn't have a record of payment and sent it for debt collection. He no longer as the receipt because it's like years ago so it's hard to even dispute.

PiggyBankBlues said...

thanks, it's good to be back :)

yikes, that's scary!!!! i never knew they could do that! i hope he has a good lawyer...

Mrs. Micah said...

Welcome back!

Just don't admit to the collectors that the debt is still valid or that you owe anything. Because that can make them "legit" in their efforts.

PiggyBankBlues said...


yes, that's a good point. the best advice is to just hang up, any correspondence or verbal answer to their questions could trigger the account being re-opened.

Ms. M&P said...

Yay, you're back!!

I cannot BELIEVE that they can send you a 1099 for forgiven debt. That's just crazy. I feel so awful for what these companies put people through. The smoke and mirrors makes it impossible to know the right thing to do.

PiggyBankBlues said...

thanks m&p :)

i know, they really prey upon people's fear and hide any rights the consumer might have, or just skirt around them...

Sara said...

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RBDC said...

How to reverse boycott debt collectors.

When a debt collector/debt collection/debt buyer company can repeatedly call with the intent of getting money their customers can repeatedly answer or call back with the intent of not giving them any. They need people to pay with as little talk as possible. They don't want to talk with people who know they are never going to pay. Be all talk and no pay. Answer when convenient. Call back. Give no information. Verify nothing. Ask as many questions as you can. Answer none.

Don't ignore/block/report them. It doesn't work. These folks want you to ignore them for as long as you can stand to or until you give them something valuable like money or information. Ignoring them is being their good customer. Sending a cease and desist is giving information. It lets them know you are still alive and remain their good customer. Preparing to initiate unlikely individual legal battles is being their good customer.

Be their bad customer. Make them talk to you fruitlessly for as long as they can stand to or until they stop selecting you as their customer. These companies cannot spend seconds much less minutes on the phone with every person who will never send them a dime. But they don't know who that is. You do. That knowledge is power. Every second you can keep their staff on the phone will render their business less profitable giving them a reason to never call you again.

Calling will not reset your SOL. Making a partial payment will.

One person who does this likes to ask general questions they should but usually won't answer, "May I have the name and address of your agent for service of process?" Calmly and slowly ask them to spell every word in the address. Read it back for verification. Control the pace. If they are rushing then politely ask them to slowly repeat. "Are you a corporation and if so in which state are you incorporated?" Repeat your questions when you don't get direct answers. When they won't answer a question ask, "Would you like to comply with the business and professions codes of your state?" That is usually the point when they hang up on me but if they say they want to comply then begin your questions again.

Repeat while you have the spare time. These folks have many victims and few operators. If everyone calls back but pays nothing the mass auto-dialer business model becomes unprofitable. Don't aid and comfort the enemy by ignoring them. Call! Have a nice long slow friendly chat! Make them hang up first.

Press 2 for Spanish.

There are certainly enough victims to take down debt collectors so ignoring/blocking seems downright Orwellian. Really? We're just going to passively submit and go with a block list or however we manage ignoring an endless stream of unwanted phone calls day after day? No! Unite or remain conquered. Answer/return every call - become well practiced at keeping these folks on the phone - or count yourself not amongst the free.