So-called zombie debt is a problem created by unscrupulous banks and debt collection companies, both in Arkansas and around the country. Despite the fact that a debtor may have paid off a debt, or that is has been discharged in bankruptcy or settled by a compromise payment, the original lender nonetheless packages the debt with hundreds or thousands of other closed accounts and sells the packages to debt collectors. The consumer must be vigilant enough to check his or her credit record regularly to make sure that the entry is challenged and removed.
Generally, if one challenges a debt with the credit reporting agencies, and the bank or other interested parties do not respond to the challenge, the credit reporting agency will be compelled by law to stop reporting it. The problem had become so widespread in recent years that lawsuits were filed against the nation’s largest lenders. These widespread complaints have resulted in announced changes by some banks and attempts to pass federal legislation to resolve the problem.
The U.S. Senate Banking Committee is now reviewing legislation that will compel reporting discharged and paid debts to the credit bureaus. An account is satisfied and not owed if it has been discharged in a bankruptcy proceeding or settled for partial payment with the lender or the collector. No one should have such resolved bills showing up on their credit record. The promise of a fresh start that the bankruptcy laws offer would be meaningless otherwise.
There has been progress on this issue for consumers in Arkansas and elsewhere, even prior to the proposed legislation. The largest offender, J.P. Morgan Chase, suspended all sales of back accounts to debt collectors. Furthermore, Chase and Bank of America have agreed to notify the credit bureaus that debts have been discharged in bankruptcy or otherwise satisfied. In the meantime, the Justice Department is investigating the improper practices that have been reported. The future looks good for cleaning up this long-lingering problem encountered by many consumer debtors.
Source: thefiscaltimes.com, “The Zombie Lurking in Your Last Debt Payment“, David Dayen, July 17, 2015