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March 12th, 2012:

Beware the Zombie Debt Apocalypse

One of the things that may be going on with all the NCTUE letters people in Colorado have been receiving in recent days (see my last two entries) is a debt collection agency fishing for “zombie debt.”

There’s a great deal about this online. It turns on a peculiarity in the law regarding debt and the statute of limitations: If a debt collector can persuade a debtor with an expired debt to pay even a penny of that debt (lying through their teeth that doing so will remove the negative event on their credit report) the statute of limitations can be reset, and the debtor may then be liable for the full amount of the expired debt.

The debt is basically brought back to life to haunt the debtor.

This is the sort of thing that may technically be legal but strikes most people as a species of fraud. Doesn’t matter: Whatever you do, never pay anything to a debt collector to settle an expired debt–or that debt’s teeth will soon be gnawing at your wallet. Brains, feh. All it wants is your money.

We don’t know yet what’s going on involving NCTUE letters in Colorado. But a zombie debt scam is possibly underway. It might working something like this:

  1. A shady debt collection agency buys (or simply invents) a bunch of old (or fictitious) debts.
  2. The agency files these debts with NCTUE.
  3. NCTUE dutifully sends out notices that they’ve received negative information for your account. (These are the letters that people have been getting.)
  4. At this point, the collection agency may begin calling or sending letters to the people named on its expired (or fictitious) debts. They may also simply wait for concerned consumers to contact them. (Don’t! Especially by phone.) They may offer to settle a debt and remove the negative credit entry for a small sum.
  5. A few people may consent to do this. As soon as the collection agency receives the settlement payment, they begin dunning the hapless submitter for the full amount of the expired (or fictitious) debt. That’s the payoff. Note that the collection agency probably bought the debt, and owns it. Whatever money they can get out of those named in the debt goes to them and belongs to them. The original owners of the debt are no longer involved and have no stake in the debt payments.
  6. In the case of truly fictitious debts, the supposed debtor isn’t on the hook for anything–but any money sent to the collection agency is probably gone forever.

This has been done many times before. Note that the scenario is still hypothetical in this case. I’m in the process of checking to see who filed an entry under my name with NCTUE. I’m also waiting for some contact by a debt collection agency. I always screen phone calls, but I’ll be doing so a lot more consistently now. What I do later on depends completely on what I learn in the next few days. Stay tuned.