Like zombies, old debts come back to life

Target 8

GRAND RAPIDS, Mich. (WOOD) — Athena Rippe couldn’t even remember what the debt was when a court officer showed up at her door with a lawsuit aimed at collecting $546.

“I was in tears because I was shocked,” she said.

After she made some calls, she remembered the credit card debt that she couldn’t pay three years earlier.

“I’m on Social Security disability. I’ve got lymphoma and leukemia and other health issues,” Rippe explained.

The cancer is in remission now, but she had a hard time covering her bills.

“It must have been something I forgot or was like, ‘Maybe it will go away,'” she said.

It did go away for a while. The credit card company had given up on collecting and written off her debt. She no longer owed the company that loaned her the money.

Then her debt was sold to a big company specializing in buying old debts in bulk — thousands of accounts at a time for pennies on the dollar. Now that old debt Rippe thought was dead came back to life. The new owner of the debt was suing her in Grand Rapids’ 61st District Court.

They call it zombie debt.


Rippe was not alone. Target 8 investigators tracked cases filed by four nationwide debt buying companies in 61st District Court. Since the start of 2009, they have filed nearly 7,000 lawsuits in Grand Rapids trying to collect on old debt.

Most of those cases never go before a judge in a courtroom. That’s because the people being sued rarely fight the lawsuit.

Rippe was one of them.

“I don’t do that. I just kind of keep to myself. I don’t fight with anybody,” she said.

In one small sample that Target 8 investigators checked, it appeared that only six out of 150 people tried to fight the collection case against them.

“People don’t think they can afford a lawyer. They may be just scared of the court,” consumer lawyer Mike Nelson explained.

So they don’t answer the complaint, which they have to do in writing within a time limit. When they don’t, court clerks enter what’s called a default judgment against the debtor.

That allows the collector to file another routine document with the court allowing it to take what’s owed from the debtor’s tax refunds, bank account or wages. In Rippe’s case, the collector got the money, now grown with fees and interest to over $600, from her state income tax refund.


The zombie debt business works like a well-oiled machine — some consumer advocates think it’s too easy.

“Here’s one debt buyer that I’m dealing with who’s filed hundreds of cases in 61st District Court alone,” Nelson showed Target 8 as an example. “From what I can tell, almost all of them are barred by the statute of limitations.”

That statute of limitations prevents collection of debts that are more than six years old, marked at the date of the last payment. Nelson said that means even if the debt is years old and a collector convinces the debtor to make just one more payment, the clock resets and adds another six-year limit.

Nelson said the courts don’t generally check whether time has run and leave it up to the debtor to raise the issue. But since most people being sued don’t answer the case in court, the statute of limitations rarely comes up.

Target 8 investigators randomly checked 20 court files. In four of them, it was difficult to tell when the debtor made the last payment.


Nelson thinks the courts should be more active in making sure consumers actually owe the debt they’re being sued for.

“The debt buyer should be required to show that they are entitled to this judgment whether or not the person answers,” he said.

Under current state court rules, the company or the attorney filing the case has to sign a statement attesting to the truthfulness of the filing, but some critics say that leaves a lot of wiggle room.

In a 2010 report titled “Repairing a Broken System,” the Federal Trade Commission reacted to complaints that zombie debt lawsuits are too skimpy, sometimes not even containing enough information for debtors to be sure it’s their debt.

The FTC recommended states take action to require collectors to include more information in their lawsuits so consumers can be sure they actually owe the money. Michigan has not adopted the recommendations.

Buying old debt is big business worth $11 billion, according to some published reports. Industry lobbying organization Receivables Management Association International said in a position paper that “federal and state regulatory agencies and legislative bodies should resist pressure from outside special interest groups to upend over two centuries of free market transferability of property rights … specifically … any attempt to prohibit the resale of an entire asset class” — referring to old debt.

The RMAI argues the sale of old debt “helps to ensure that low and middle income consumers (including the silent majority who has never defaulted on a debt) have access to credit at affordable interest rates.”

It also wants government to “consider the least restrictive options in their regulatory actions.”

The organization says it has a certification program that helps protect consumers.


“The people who do get sued on these, disproportionately, not surprisingly, tend to be low income,” Nelson, the consumer lawyer, said.

There may be some deadbeats but when people live from paycheck to paycheck, they can get into financial trouble unexpectedly.

“You’re talking about, often, loss of a job, divorce, medical problems,” Nelson listed.

He noted that getting a debt judgment can have long-term consequences.

“Once they get a judgment, the statute of limitations on that judgment is 10 years and can actually be renewed for another 10 years,” he said.

“I question whether that’s an appropriate use of our district courts, part of our government,” he added, referring to how the system operates. “I don’t know that those are there to be acting as collection agencies for companies that pay 3 cents on the dollar for this debt.”

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