Late night comedian John Oliver recently offered his unique and humorous take on the debt buying industry, noting that collection agencies are responsible for more lawsuits than any other type of plaintiff, and that many of these lawsuits claim money damages for zombie debt. Zombie debt is debt that is not legally collectible because the statute of limitations has run.
Debt buyers rely on intimidation and ignorance, and obtain legally legitimate judgments when consumer defendants fail to answer a lawsuit.
Here’s how it works: let’s assume that you visited a hospital or otherwise incurred a debt back in 1995 that you never paid. Under Georgia law generally the statute of limitations on an unsecured debt like a medical bill or a credit card debt would be no longer than 6 years. So, by the end of 2001, your 1995 debt would no longer be legally collectible. This means that if someone sued you in 2010 for the 1995 debt, you could answer the lawsuit by stating “this statute of limitations for collection of this debt ran in 2001 and plaintiff’s claim should be dismissed.”
If you answered a lawsuit using language like this, any Georgia state or magistrate court judge would dismiss the debt buyer’s claim and you would be done. You could also counterclaim the plaintiff for frivolous litigation, but that is a story for a different day.
However, if you fail to answer the 2010 lawsuit, the attorney for the debt buyer would go to court and say, “your Honor, the defendant has failed to answer our complaint and we are requesting a default judgment.” The judge would have no choice but to grant this request.
Incredibly, a debt buyer can get a default judgment even if you were wrongfully identified as the debtor. In other words, you can be sued for a medical or other debt that you never actually incurred, but if you don’t file an answer to the collection lawsuit, an enforceable judgment will be issued against you.
By obtaining a default judgment against you, therefore, a legally non-collectible debt will become a legally enforceable judgment. And the debt buyer can use that judgment to garnish you wages, put a lien against your house and car, clean out your bank account and take any other legal action to collect the debt. Further, if you don’t file a written appeal within 30 days, you cannot later come back and say “I want to challenge this claim on the grounds that the statute of limitations has run.” You now have an enforceable judgment to deal with and with limited exception, your only recourse is to settle the debt with the debt buyer, or file bankruptcy.
Debt buying is big business in the United States. As he discusses in this video, Mr. Oliver set up a debt buying service and bought over $15 million in out of statute medical debt for $60,000 (this works out to buying debt at half a penny on the dollar). Mr. Oliver “forgave” this debt but, obviously, most debt buyers pursue collection aggressively.
If a debt buyer purchases debt at less than 1 penny on the dollar, but ends up collecting only 5% of what it bought, the return on investment is huge. This is why the debt buying business is so big and so profitable.
Currently, there is very little regulation of the debt buying industry although the CFPB (Consumer Financial Protection Agency), a federal government agency has sued a number of high profile collection agencies and collection lawyers for deceptive and misleading practices. However, debt buying companies use their profits to lobby state legislators to pass industry friendly laws.
How to Protect Yourself
The most important thing to remember is that you have to take action if you receive a collection letter or a lawsuit about any debt, but especially about an old debt. Never make any payments or enter into a payment agreement on a debt without first talking to a lawyer (a bankruptcy lawyer or a consumer rights lawyer – Ginsberg Law can be reached at 770-393-4985).
- If you make a payment on an old debt, you risk “reviving” that debt and extending the statute of limitations.
- Never, ever ignore a collection lawsuit. Nothing good comes from a default judgment.
- Finally, do not take advice from a bill collector or creditor representative. They will intentionally (or non-intentionally) mislead you and you can be sure that the information they provide you is not designed to help you in any way.
If you have any questions about debts or debt collection, please call our office – Susan Blum and Jonathan Ginsberg are here to answer your questions.