This post is about zombie debt issues in bankruptcy.
I have blogged about Zombie Student Loan Debt, and,
other zombie debt. Today, we examine zombie debt
What Is Zombie Debt?
Zombies never die. Mostly. And zombie debt never dies.
Most state court lawsuits, at least here in Michigan, are filed by debt buyers, not the original creditor who lent you the money.
The terms of the debt buying deals are, in a word, outrageous.
The debt sellers are not guaranteeing that you admit you owe the debt, that the statute of limitations to collect the debt is not past, not even that the debt was not discharged in bankruptcy.
And the zombie debt buyers don’t care; they buy anyway. Paying pennies on the dollar, betting that they will collect more than they paid, at least on average.
A debt discharged in bankruptcy is, or should be, dead. But, it comes back to life, a zombie debt, if acquired in one of the billions of debt buying transactions that occur each year.
What About Zombie Debt In Bankruptcy?
In order for a creditor to get paid in a Chapter 13 payment plan bankruptcy, or, by the trustee in a Chapter 7 case in which there are assets,
To get paid, any creditor has to file a proof of claim, in the bankruptcy court, under penalty of perjury.
The trustee, or the debtor, the person who filed bankruptcy, can object to the claim.
The debt buyer business is a default judgment, we make our claim, and the debtor/person who owes, does nothing.
In a state court suit, we get a default judgment. In bankruptcy, no one objects to our claim.
I suppose they might be able to prove they own the debt they claim they bought, but I have not seen it in the claim objections I have filed in Chapter 13 bankruptcy cases.
Businesses operate to make a profit. If zombie debt buyer paid $500 for the $15,000 claim it filed in bankruptcy court, it may not be worth it to them to hire an attorney to defend my claim objection.
Especially if they cannot document the validity of the debt, as in the Florida case linked to above:
The Court here distinguished those cases because the custodian testified that she did not receive any ledger, account history or payment history from the predecessor of the debt buyer or its servicer. The Court concluded that the plaintiff debt buyer and its servicer could not have completed any independent verification of the accuracy of the credit card statements.
It cost money to, you know, actually keep records, be able to find them, have someone testify about them. The zombie debt buyers hold down costs by, well, not doing these things.
So they tend not to show up, not to oppose claim objections to zombie debt in bankruptcy court.
And that can make the difference between your Chapter 13 bankruptcy plan working, or, failing.