Last updated April 21, 2018.
In a recent lawsuit, Chase Bank was forced to pay out more than $160 million in penalties and $50 million in refunds to consumers for selling bad zombie debt to collection agencies.
What is a zombie debt?
Many people have had a debt that they could not pay or that they simply forgot to satisfy. Over time, the creditor will make a series of attempts to collect the debt. At a certain point, the creditor may decide it is no longer cost-effective to pursue the outstanding amount or that the statute of limitations has run on filing a lawsuit to collect the amount. Therefore, they may write off the debt and make the determination that it is “uncollectable.” At that point, many creditors will package large amounts of uncollectable debt and sell that debt to collection companies for pennies on the dollar.
These collection companies then begin to pursue the debts. Because they pay so little for the debt in the first place, they can make a profit even if they collect only a small portion of the debt. The once-uncollectable debt has risen from the dead, so to speak, to become “zombie debt.”
In most circumstances, once the collection companies contact the debtor about this debt, it is very old. The debtor may not remember incurring it and may not have documentation to dispute or confirm the validity of its existence.
Zombie Debts Came Back to Haunt Chase
After years of selling zombie debt, JPMorgan Chase Bank is now on the hook for over $160 million in penalties and $50 million in consumer refunds. It seems Chase continually sold bad credit card debt and robo-signed court documents in conjunction with debt collection actions, all in violation of federal law. Attorneys General in 47 states, including Ohio, and the District of Columbia joined with the Consumer Financial Protection Bureau (CFPB) to order the financial giant to stop attempting to enforce in court, selling, and attempting to collect on over 528,000 consumer accounts on which it previously initiated lawsuits.
On July 8, 2015, the CFPB found that Chase had sold zombie debt that was already settled, discharged in bankruptcy, inaccurate, not owed, or otherwise uncollectable to third-party buyers. Going forward, the order requires that Chase must document and confirm the accuracy and validity of debts before selling them off to collection companies or before filing any collection action. Chase began compensating customers shortly thereafter with refunds.
Put simply, Chase was selling debt that could never be collected. The borrowers had already either paid off or settled the debt, discharged it in bankruptcy, or no longer owed the debt for some other reason. When Chase sold those debts, it caused debt collection agencies to start trying to collect on debt that wasn’t actually owed — and those agencies were successful in many cases.
How are debts uncollectable?
There are a number of reasons the debts sold by Chase were uncollectable. Often, borrowers had successfully received a bankruptcy discharge. Debts discharged in bankruptcy can no longer be collected. Many borrowers settled their debts for a lump sum of less than was owed, which ends the debt obligation. In some cases, people had simply already paid their debts.
In many cases, the statute of limitations on the debt held by Chase had run. The statute of limitations is a legal time limit for filing a suit. When the statute of limitations has run, you can no longer be sued for collection. In Ohio, the statute of limitations on debt is six years from the date the debt became overdue or six years from the date of the last payment you made, whichever is later. After six years, you can no longer be sued for collection.
Note that the court won’t automatically give you the benefit of the statute of limitations. If you’re sued for collection, you have to answer the lawsuit and show up in court to dispute the debt on the grounds that the statute of limitations has run. For example, if you’re sued for collection 10 years after your last payment and you don’t answer the lawsuit and dispute it in court, the collection agency can still get an enforceable judgment against you and there’s nothing you can do to fight it.
Finally, information about the debt may be incorrect or incomplete. In order to collect a debt, the collection agency must be able to prove that you actually owe it and that they actually own it. In many cases, they don’t have the paperwork they need to do that. Like the statute of limitations, however, the burden is on you to force them to show proof. If you don’t answer the lawsuit and show up to dispute the claim in court, they can get an enforceable judgment against you even without the necessary paperwork to prove that you actually owe the debt.
What to Do If Zombie Debt Comes After You
For a large majority of these zombie debts, the collection companies will start calling and harassing you for the money. This is done without confirming whether the debt has been discharged in bankruptcy, whether the statute of limitations has run, and whether the amount sold by the original creditor was even accurate.
So what should you do if the collection company contacts you about a zombie debt?
- Don’t talk to them on the telephone. Chances are they will record your call and you may say something inadvertently that does not help your cause.
- If they call, simply request the collection company’s address and end the conversation. ALL correspondence with the collections company should be done in writing, through letter format, not email. You should send every correspondence via certified mail, return receipt requested, to ensure the document was received and by whom. Keep copies of everything you send.
- Send a certified letter to the debt collection company within 35 days of their initial contact with you. In that letter, you need to dispute that you owe the debt and ask that the collection company provide you with proof that you do owe it.
- In your correspondence, do not confirm that the debt belongs to you, as you have no proof that it does. If you do, you have created proof that could be used in a lawsuit against you.
- Once you have made the written request denying you owe the debt and demanding proof thereof, do not have contact of any sort with the collection company UNLESS and UNTIL they have provided you with written proof that the debt is valid and is indeed your responsibility, or they provide you with a judgment against you specifically, plus the name and address of the original creditor.
- Remember that a debt isn’t necessarily collectible and you don’t have to pay just because they say you do. You may have already paid or settled the debt, you may have discharged it in bankruptcy, or the state of limitations may have run. If any of those is the case, you no longer have to pay.
- Consider contacting an experienced local attorney to help you defend your rights.
What to Do If You Get Sued
If you do receive a notification from a collection company that they have initiated a collection lawsuit against you, make sure that you answer the complaint. If you don’t answer it, you’ll end up with a judgment against you for the amount they’re claiming even if it’s wrong. If you’re sued, you’ll receive a formal Complaint and Summons. You need to file a formal Answer to that Complaint.
In Ohio, you have 28 days to do that. In your Answer, you’ll need to ask the collectors to show proof that you actually owe the amount they claim and that they actually own the debt now. If you’ve paid the debt, settled the debt, had it discharged in bankruptcy, or if the statute of limitations has run, you need to include that in your Answer as well. Once you’ve filed your Answer, a court date will be set. You’ll need to show up at court to defend yourself.
In many cases, the help of an experienced Ohio attorney is invaluable in protecting your rights. Your attorney can help you bring up other potential defenses and can make the strongest case for the defenses described above. If you handle your case yourself and make mistakes in your correspondence with the collection agency or in your court filings, or if you fail to bring up all possible defenses, you may end up with a judgment against you for a debt you don’t actually owe. At that point, there’s nothing you can do about it and you’ll have to pay.
You should contact an attorney as soon as you receive notification that a suit has been filed against you. Do not contact the collection agency at all; they have to deal with your attorney. Once you have an attorney, they’re barred by law from contacting you at all.
We Can Help
If you have questions or concerns that you might be the victim of zombie debt or that a collection agency is violating your rights, there are resources you can use. Contact the CFPB to submit a complaint or to get additional information on your rights as a consumer.
If you’re fighting zombie debt, contact us today for a free consultation and case evaluation. We can help you protect yourself from zombie debt and we can help you pursue a refund from Ohio’s portion of the settlement. We can also help you if you’ve been harassed or abused by debt collectors. The law limits how and when debt collectors may contact you and interact with you. If they’ve violated that law, you may be entitled to a remedy.
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About Russ Cope
Russ B. Cope is dedicated to legal standards that go far beyond filing cases — he is interested in your goals. Russ wants to be certain that each client is making an informed decision that will make their life better, and thrives on the interaction between lawyer and client.