Attack of the zombie debt

You may be a victim when old bills get new life

Even though Halloween is nearly upon us, the worst fright of all out there isn’t ghosts, goblins or even another week and a half of political ads (aaaaagh!).

It’s the zombies.

As in "zombie debt," the nickname for a particularly creepy kind of collection tactic that recently tried to get its slimy hands on me and my checkbook.

Scary? It was more frightening than my 4-year-old, Li’l Money, hopped up on grocery bag full of Halloween goodies — and twice as persistent. Here’s how it works:

Zombie debt occurs when an old bill that you thought was long dead is sold to one of several specialized collection firms. These debt buyers pick up huge piles of charged-off bad debt for pennies on the dollar, then go off to collect what they can. But first, they typically run a few details through a sophisticated credit-scoring program that estimates how many of the alleged deadbeats (or at least people with similar names) are likely to pay the old bills.

Then the collection firms launch a round of phone calls, collection notices and even lawsuits to get the old bills paid. The more they collect, the more they make, which can — and does — lead to abuse, fraud and intimidation.

"This is something that has really gotten huge in recent years," says credit expert Liz Pulliam Weston, author of "Deal With Your Debt" and a columnist on MSNBC.com. "It’s become this massive business."

How massive? One industry supplier estimates that collection firms will buy up $110 billion worth of debt this year, paying from 12 cents on the dollar to less than a penny.

In many cases, these are legitimate old debts that have dropped off the 7-year time span of your credit report. But like real zombies, zombie debt isn’t particular about who it ends up feeding on, experts say.

That means someone with a similar name may be targeted for collection. Bills that were disputed, paid, dismissed in bankruptcy or never owed in the first place also are reanimated to stalk unsuspecting consumers.

In my case it was part of a 5-year-old phone bill I never was billed for and didn’t owe. Nonetheless, there was a nasty collection notice in the mail demanding $39. When I asked the collection agency to prove that I owed the debt, there was no documentation. I was just referred to the phone company.

When the second notice came, I nearly did what a lot of upstanding consumers do: assume it was my fault and pay the thing, figuring it was worth $39 to keep my mostly sterling credit score safe from the corrosive effect of an overdue payment.

That, in fact, is what zombie debt firms are counting on: that most of use will react to any threat to our all-important credit scores by writing a check to make the problem go away.

"They are finding it’s profitable even if they’re going after the wrong people," Weston explains.

But several calls to Verizon in New York turned up the truth: that $39 had been mistakenly put on my account after it was closed. I had never even been billed for it.

Aha! Die, zombie!

I was lucky. There are some unscrupulous collectors who illegally put old debts back on your credit report, or try to trick you into paying a portion so they can reactivate the full debt.

Some collectors also ignore the debt statute of limitations. In Michigan, the statute of limitations on debts is six years. Once the deadline has passed, a collector can’t go to court to force payment. But that doesn’t stop some zombie debt firms from going to court, knowing that most consumers ignore the notice. Then they win a default judgment and can enforce it to collect the old debt, even garnishing wages.

The Michigan Attorney General’s office has received hundreds of complaints about zombie debt problems, says spokesman Ari Faneuil. "They’ve really upped (collection) in the past couple of years."

But some consumers are fighting back — enough to make it a full-time practice for consumer protection attorney Brian P. Parker in Bingham Farms.

"My business is booming," he adds. "Probably 20 percent of my clients don’t owe these debts, and they’re just being pestered to death. But that’s why these collection firms are successful — people will wear down. If it costs them $200 for peace of mind, they’ll pay it."

But that’s the easy way out. If we’ve learned anything from the watching cheap B-movie horror films (other than the fact that necking teenagers are doomed) it’s that nothing is as satisfying as watching a zombie die.

Unlike the movies, however, you won’t need a sledgehammer, Molotov cocktail or even a chainsaw. A simple letter to the debt collector asking for proof of the debt owed is all it takes to send many zombies stumbling away. Then you can go on to worry about something really scary: the Christmas sales that start the day after Halloween.

Aaaaaagh!

You can reach Money & Life Editor Brian J. O’Connor at (313) 222-2145 or boconnor@detnews.com.

Source: Detroit News

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