After Kim Mullen filed for bankruptcy in 1993, she cut up all her credit cards in her lawyer's office. Since then, the Levittown resident...
MELVILLE, N.Y — After Kim Mullen filed for bankruptcy in 1993, she cut up all her credit cards in her lawyer’s office. Since then, the Levittown resident has managed to obtain a good credit rating.
But in December, a debt collector contacted her, saying she had an unpaid card balance of $5,655 from 1992.
With interest, the letter claimed, the debt had grown to $19,400.
As old debt seems to rise from the dead, it’s taken on a name — “zombie debt.” And in recent years, more and more such debt is coming back to haunt consumers, according to their advocates and lawyers who specialize in debt.
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Mullen, 46, says she doesn’t remember the debt and has challenged it. Others who have received such notices say the purported old debts are a result of identity theft.
Many credit-card companies have started selling delinquent accounts to collectors to boost quarterly earnings, according to a report by Kaulkin Ginsberg, a Rockville, Md.-based adviser on debt collection.
The collectors then resell some of that debt to other collection agencies, accounting for $100 billion in credit-card debt sold annually, according to the March 2006 report.
Though collection agencies can’t legally contact consumers for debts included in a bankruptcy, experts said sometimes agencies might not know about the bankruptcy, which is removed from credit reports after seven years.
Rozanne Andersen, executive vice president and general counsel for ACA International, an industry trade group for debt collectors based in Edina, Minn., said that if consumers inform a collection agency that the debt is due to identity theft, the agency must investigate that claim.
Zombie debt has its origins in the 1990s, when credit-card companies sought to maximize interest payments by offering cards to customers with a history of carrying balances from month to month, said Brian Bromberg, a Manhattan lawyer who represents consumers dealing with debt collectors.
When cardholders defaulted, banks would sell the debt to collectors.
If those agencies couldn’t collect, they resold the debt to another company, which might resell it yet again.
When the debt became more than a decade old, it might have been sold for pennies on the dollar, with a successful collector making big profit.
The consumer does have protection: Six years after a debt goes into default, the collector no longer can sue to collect. And after seven years, the debt can’t be shown on a consumer’s credit report.
But efforts to collect old debt are legal, as long as the collector doesn’t threaten to sue or report the debt to a credit agency.