Exploring Civil Case Proceedings

Suffering An Attack Of Zombie Debt After Bankruptcy? What Are Your Options?

6 August 2015 by Becky Freeman

If you've recently received a discharge of debt through a Chapter 7 bankruptcy, or have finished a Chapter 13 repayment plan, you're probably looking forward to a fresh start. You may have already taken steps to begin repairing the damage to your credit, like applying for a secured credit card or small installment loan. However, in some cases, one or more of the debts you discharged or repaid through the bankruptcy process may actually be resurrected in a phenomenon known as "zombie debt." Read on to learn more about how this debt functions, as well as some of your options if you begin receiving collection calls for a debt you no longer owe.

How do you know whether you're the victim of zombie debt?

As soon as you file for bankruptcy protection under either Chapter 7 or Chapter 13, the bankruptcy court will issue a "stay" in your case. This legally prohibits creditors from contacting you to seek repayment of a debt, and those who contact you in violation of this stay could face stiff civil penalties or even forfeit their right to collect this debt altogether. Once your debt is discharged through Chapter 7 or repaid under the terms of a Chapter 13 agreement, the stay is lifted.

In some cases, a creditor may sell or write off your debt while you're still in the bankruptcy process. This allows the original creditor to declare a loss on its tax return while providing the debt buyer with a seemingly valid debt for pennies on the dollar. Because your bankruptcy hasn't been finalized when the sale takes place, the new creditor doesn't know it isn't valid and may attempt to contact you to seek repayment. If you've found yourself receiving phone calls or letters during a time when all these communications should be stayed by the court, it's possible that your original debt was already sold and the new creditor isn't aware you're going through the bankruptcy process. 

What are your options if you're being contacted to repay a debt that was legally discharged?

The simplest option to solve this problem is simply to send a letter to the creditor requesting that the debt be validated. Under the Fair Debt Collection Practices Act (FDCPA), creditors are required to provide an accounting and verification of debt, in writing, upon the borrower's request. As soon as you've made such a request, the creditor (and its agents) are legally prevented from contacting you until they have verified the debt.

Because this debt is invalid, it's unlikely the creditor will be able to provide you with information establishing that you still owe these funds, and therefore they won't be able to contact you about the debt going forward. Once your bankruptcy has been approved, you can also send the notice or order of discharge to this creditor to confirm that the debt is no longer owed.

If the creditor with whom you're dealing is especially aggressive or doesn't seem to be responding to your legal requests, you'll probably want to enlist the services of a consumer attorney. This attorney will be able to ensure that your communications with the debt collector comply with federal and state debt collection practices and will also quickly log any potential violations committed by the creditor. You may then have grounds to sue the creditor in civil court, particularly if the zombie debt is reported as active on your credit report or if you've spent a substantial amount of time trying to straighten this issue out. Creditors who willfully violate the FDCPA in the process of collecting a debt can be subject to stiff financial sanctions, some of which are payable to you as the victim.

 

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