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.

photo by felix42 contra la censura via flickr