Neil L. Sobol

Texas A&M University – School of Law
November 5, 2013
New Mexico Law Review, Forthcoming

Abstract:     

The debt-collection business is booming, led by a dramatic increase in the sale and collection of defaulted debts. Currently, debt buyers annually purchase more than $100 billion in the face value of debts. In the typical purchase, buyers pay only a small fraction of the face value of the debts; in return, they receive extremely limited, often inaccurate information. Many of the debts that buyers seek to recover never existed or are no longer enforceable by operation of law. Consumers who receive communications from debt buyers often complain about mistaken-identity and identity-theft cases where the individuals contacted never incurred the alleged debts. Additionally, buyers may seek recovery of debts that have been paid, settled, discharged in bankruptcy, or have become time-barred because the collection period under the statute of limitations has expired.

By obtaining judgments or persuading consumers to pay a portion of these debts, acknowledge these debts, or enter into new agreements, collectors can transform these debts thought to be “dead” or non-existent, into “living” and enforceable debts. The media have labeled these resurrected debts as “zombie debts.” Just as the zombies in movies come back from the dead to terrorize individuals, dead debts may resurface to cause havoc for consumers. Even if a consumer successfully defeats one zombie-debt collector, the process may restart when the debt is resold.

Legal scholarship has only begun to address the issue. The scholarship has primarily focused on the collection of zombie debts through the court system; however, the abuses are not limited to litigation. Collectors are often successful in persuading consumers to pay dead debts without filing lawsuits. Moreover, efforts to make it harder for collectors to sue on unenforceable debts may increase pre-litigation abuses. Accordingly, this Article addresses zombie-debt issues before the onset of litigation. It identifies the failure of traditional methods to deal with this growing problem and proposes amendments to the federal Fair Debt Collection Practices Act to establish uniform standards for the transfer of information and documentation to debt buyers and consumers. Furthermore, penalties and limitation periods should be set to deter debt buyers from violating the Act. Finally, the Article emphasizes the importance of providing assistance and education to consumers and suggests that the recently formed Consumer Financial Protection Bureau coordinate a federal, state, and local attack to combat zombie debt.

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