I don't recall the term “zombie debt” coming up in law school those many moons ago, but with the downturn in the economy over the last decade or so, it is a term which has emerged.
Although it does not have a specific definition in the cases or statutes, it is a term that usually means debt that is quite old, from several years old to a decade or more, such as old credit card debt, old gym membership debt, old car repossession debt, or old payday loan debt
Zombie debt is typically purchased by and assigned to collection companies, oftentimes repeatedly, for pennies on the dollar.
The party that pays the pennies on the dollar then is assigned and receives the right to try to collect the debt.
Typically, these are debts that carry hefty compound interest charges, and so when they arise years later, the alleged claim may be for many, many times over the principal sum upon which it is based, when compound interest is added on.
Sometimes, the debt is not legitimately owed, because the alleged debtor may have actually resolved the debt with a prior holder or purchaser of the obligation who resells it anyway.
Sometimes the debt is not legitimately owed because it was fraudulently incurred through identity theft or some other illegitimate means.
Sometimes the debt is not legitimately owed because it was discharged through a previous bankruptcy that a subsequent purchaser doesn't know or care about.
Sometimes the claim on the debt is so old as to be outside the statute of limitations, and therefore not enforceable anymore.
Nonetheless, the purchase and subsequent attempts to enforce these bundles of zombie debt has become a burgeoning industry.
The way it typically works is the assignee, or collection company, takes whatever documentation of the debt that comes with the purchase, and turns it over to a collection law firm, which in Missouri, is typically one of several collection “mill” law firms from the St. Louis area.
From there, multiple lawsuits are filed and processed in bulk, typically using fill in the blank forms, oftentimes dozens at a time.
Sometimes the form used for the suit papers prepared and filed by the law firm filing the case makes no sense, or does not fit the situation correctly.
After filing, the next step is to try to have the alleged debtor personally served with suit papers telling them to appear at a specific court docket, or suffer a default judgment.
Many people ignore this, and that is exactly what happens.
I have known occasions where personal service was falsely documented, where it was not actually obtained, and the person sued never even knew about the lawsuit, or that they were supposed to show up in court or suffer default judgment, which they then suffer.
It is also not uncommon for zombie debt lawsuits to be filed in a county far away from the debtor, making it difficult or practically impossible for them to appear at the docket to avoid default.
But, the bottom line is, at the end of the day, in many cases a good, diligent, and competent attorney can effectively fight or help to resolve a claim based upon zombie debt.
It may not be quick, cheap, or easy to do, but a good lawyer oftentimes can help a victim of a zombie debt claim turn the tables on those in pursuit.
Therefore, it is imperative for those who may be pursued on such claims to act promptly to seek counsel the minute they receive notice that such a claim is being made against them.
Ken Garten is a Blue Springs attorney. Email him at email@example.com