Collections on Old Debts on the Rise
10 August 2006From Liz Pulliam Weston on MoneyCentral comes an article on what she calls “zombie debt,” which is older debt that you thought had disappeared but has suddenly been resurrected by a collection agency. How does this happen?
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.
So an entire new industry has arisen related to trying to get something, anything on these old debts. The main way of doing this: harassing and threatening the credit of the people who owe them. The logic is easy to follow:
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.
Weston lists a number of abuses consumers have faced from the most aggressive collectors, including faking the age of the debt to the credit agencies, giving you a credit card so they can take the old debt back on, and promising to do anything if you’ll make a tiny payment on the debt. Why are they doing all this? The answer turns out to be simple: there’s a statute of limitations on the debt in all states. You can’t be sued for repayment after a certain amount of time passes - it varies from state to state. The debt collectors have figured out a variety of techniques which are designed to get you to do something that will “revive” the debt back to life. That’s why Weston says the best advice is to just hang up the phone and stop talking to the collection agency.
I’d be more careful about ignoring them entirely, however. Threats of litigation may be very real, especially if they’re written - and if you don’t show up for a court date, the statute of limitations won’t be of much help to you. This is one of those situations where contacting a consumer lawyer is probably your best bet. See if you can find one who will represent you using statutes that allow them to collect their fee from the collection agency. It’s actually pretty common, and the lawyer will be happy to turn the tables if you can document actual abuses.
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