Consumer Law

"Bankruptcy Judge Strikes Back Against Zombie Debt"

By M. Stan Herring

The Bankruptcy Law Network has posted an article about a recent case where debt collectors tried to hold a man responsible for a debt that was discharged through bankruptcy fifteen years before.

The sale of debt that was discharged in bankruptcy is a violation of the bankruptcy discharge. In this case, the seller of the debt was held "liable for attempts by its unrelated buyer some 15 years after the bankruptcy to collect a discharged account." The debt buyer didn't know anything about the bankruptcy because the bank (the seller) sold it without telling the buyer the debt wasn't enforceable. The discharged debt/account that reappeared is called zombie debt.

Judge Lamoutte presided over the case and concluded that the very act of selling the debt to someone who would attempt to collect on it was a violation.

This decision highlights one of the functional failures of the bankruptcy discharge to bring real peace to a debtor. Even though unenforceable, the discharged accounts get passed from collector to collector, for decades, with each collector attempting to squeeze money from the hapless debtor. Kudos to Judge Lamoutte who refused to absolve the original creditor from the foreseeable consequences of the sale of its claim against Mr. Laboy.

We don't cover bankruptcy, but if you have questions or concerns feel free to contact us through our website or by calling 205-879-2447.

You can join our Facebook Fan Page - Alabama Consumer Protection Attorneys where we share useful information about the same types of issues that we cover in this blog.

You can also sign up for our free email newsletter sent out every Thursday morning - we cover topics such as the one in this post. We would love to include you! Just fill out the form below:

Full post as published by Alabama Consumer Blog on April 09, 2010 (boomark / email).