Debt Collectors and Zombie Debt

The Washington Post has a story on the rising trend of debt collectors attempting to collect old debt — so old that it is no longer collectable — by using loopholes:

While Alabama has a longer period for some debt, the general rule is:

Debt collectors lose the right in many states to sue consumers after three or more years. But there’s a loophole: If the consumer makes a payment, even against his or her own will, that can be used to try to revive the life of the debt.

And the loophole works by:

The efforts to collect on old debts often focus on getting consumers to reset the statute of limitations through a variety of means, including sending them credit cards that let them pay off their old debts or by allowing them to make a small payment to halt debt collection calls. The efforts have contributed to the flood of debt-collection lawsuits clogging courts across the country, consumer advocates say. In New York City, the number of debt-collection lawsuits surpassed 100,000 last year, compared with 47,000 in 2016, according to data from the New Economy Project, an advocacy group.

But good news for Texans:

Texas and Washington state passed legislation this year making it more difficult to revive debt past its statute of limitations, but the industry successfully fought efforts in other states, including New York. And consumer advocates worry that new rules proposed by the Consumer Financial Protection Bureau — the first major update to the Fair Debt Collection Practices Act in more than 40 years — could further bolster the industry.

One of the main problems is that debt collectors have major problems proving ownership and proper accounting of “new” debt. It is easier to just have a business model based on volume and hope the consumer does not make them prove their case. This is problem is greatly compounded with zombie debt since the evidence of the debt has disappeared.