When Zombie Debt Collectors Chase Written-Off Debts

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Chances are that you have never heard the terms Zombie Debt or Zombie Debt Collectors. Neither had former United States Marine Lt. Charles Lay until the first week of October 2018, when he received this phone call:

“Superior Court calling, and we want to verify if you are going to be making your court hearing tomorrow at 8 a.m.”

“What are you talking about?” he asked. The voice replied, “Here is the case number, call 855-722-5011 and give it to them.” Next, Lay phoned and reached “Armstead Legal,” and was told, “You better be home tomorrow. We are going to serve you. You are stealing from Navy Federal Credit Union!”

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Lay at one time had a checking account with Navy Federal, “which was closed over 10 years ago. None of my bank statements or credit reports ever showed anything past due.”

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He asked for proof of what they were claiming. “You have lost all your rights to proof. We will see you in court, and by the way this is being recorded!” was yelled at him.

“But I never gave you permission to record me!”

“It doesn’t matter!” the guy screamed.

How old — and sometimes fake — debts come back to haunt people

We’ll tell you all about these zombies in a moment, but first a question. What happens when a debt is written off or charged off?

When a company is unable to collect a debt and “writes it off,” or “charges it off,” what does this mean? Does it just disappear, letting the person who didn’t pay off the hook, the merchant (or bank) taking the loss?

We asked that question to several of our clients, and most thought that when a debt is written or charged off, that’s the end of it. But that’s not the way it works, as we learned from Sacramento, Calif.-based Jan Stieger, executive director of the Receivables Management Association International. As she explained:

“ ‘Written off’ is an accounting term used for tax purposes and has no impact on the underlying contractual obligation owed the creditor — nothing to do with a debt being owed or not. For example, in the banking industry, by the time an account is 180 days old and several unsuccessful collection attempts have been made, federal law requires that it is ‘charged-off,’ and cannot be shown as an asset of the institution.

“In 47 states, it still is owed — even if beyond the statute of limitations — and suit can be filed, which is a fact that many people are unaware of.”

The role the debt-buying industry plays

So, if the debts don’t just go away, what does happen to them? The debt-buying industry steps in, Stieger said, taking steps that ultimately help keep the cost of credit lower for us all. She explained that her industry buys debt that has been written off and works on “collecting so-called uncollectible debt, which plays a significant role in reducing the cost of credit to consumers.”

It makes sense. If you have a business and your losses are reduced, then the cost of doing business is also reduced, making your service or product available to the consumer at a lower price.

She was quick to acknowledge the very real problems that some illegitimate debt buyers cause innocent consumers, and explained how people like Charles Lay are targeted.

"Zombie debt is old debt, generally passed the statute of limitations that has not had collection attempts made on it for a very long time. When collection attempts restart — sometimes many years later — it’s considered ‘resurrected.’

“Zombie debt collectors often violate the federal Fair Debt Collection Practices Act by using abusive and offensive language, leading frightened consumers to pay just to get the collector to leave them alone.

“But there is a professional and ethical manner to collect legitimate defaulted accounts. The industry, represented by RMA International, holds members to high standards via our Certification Program.”

What we learned about Armstead Legal

Neither Stieger nor our private investigator could find Armstead Legal as a real entity. When their phone number was Googled, post after post from people all over the country appeared who also had also received similar threatening calls concerning bills they did not owe, some not even in their name, all of which were old — very old — and beyond the statute of limitations.

On Oct. 8 and 9, 2018, trying to find out if there was any basis for their claim that Mr. Lay owed Navy Federal Credit Union $1,100, I spoke with some of the world’s nastiest, truly horrible people who answer that phone number.

As they claimed to be recording all calls, I did as well and then, when writing this story, listened to those recordings. It required a double dose of blood pressure meds. I was speaking with pure evil.

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Warning signs that something’s fishy

The take-away from these types of phone calls is simple. First of all, a call from someone claiming to be from “The Superior Court” is pure nonsense. Court clerks do not spend time reminding people they are due in court, or telling you to call a certain phone number and give them a case or file number. This just doesn’t happen.

Next, if you receive such a phone call, do jot down the number. It is always important to find out what it’s about, but if you are someone who is easily frightened into saying “Yes, I will pay,” have a friend who won’t take no for an answer do the calling and press for information.

Another give-away that Lay’s phone call was a scam was the statement, “You have lost all your rights to proof.” Under the Fair Debt Collection Practices Act, you have the right to insist upon the debt collector sending proof of the debt through a process called debt validation. Within five days of first communicating with you, the debt collector is required to send a written debt validation notice to you. This notice will state your right to dispute the validity of the debt within 30 days.

These jerks at “Armstead Legal” told me that Lay’s time was up, as they had given him the chance to request that information, but he failed to do so. This we knew was complete hogwash as this scumbag of a collection agency had only gotten the account less than a week earlier from another bill collector who did nothing with it. Armstead was attempting to collect a non-existent debt and clearly had no proof that Lay owed Navy Federal a cent, otherwise they would have sent it.

Calling the bank was no help

"So why not check directly with Navy Federal Credit Union to see if Lay owes them anything?" you are probably thinking.

We did, repeatedly, getting their charge-off department on a conference call with Lay, who authorized orally and in writing the release of his account information. And Navy Federal's response?

"We have his entire account history, but it cannot be released to anyone as it was sold to a collection agency," we were told.

"But this creepy so-called collection agency refuses, claiming that he has no right to the information. So, as you have it, you are our only hope to establish if there is any basis at all for this matter," I replied.

That got us nowhere.

I also spoke repeatedly with Navy Fed's media relations department, stating that I was going to do a story on this and obtained not one iota of help. "Yes, we have the information, but legal refuses to let it be released to Mr. Lay."

Nothing legally prevented Navy Federal from releasing Mr. Lay's account history to him or to me, as his lawyer. Nothing!

The bottom line for consumers

Whatever you do, do not agree with anything a bill collector says as it could be taken as an admission that you owe something. Find out their address, fax number, and ask for proof of the debt. I tell my clients to give them my name, to direct all communications through my office and to stop calling.

As of Dec. 31, 2018, that (855) number is still answered as “Armstead Legal,” but Charles Lay hasn’t heard a word from them in months. And, just to show you how cheeky these guys are, we sent them a certified letter, asking for proof of the debt. Now, get this: They signed for the letter and then, without opening it, handed it back to the letter carrier. So, my office received the proof of delivery along with our unopened letter!

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Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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After attending Loyola University School of Law, H. Dennis Beaver joined California's Kern County District Attorney's Office, where he established a Consumer Fraud section. He is in the general practice of law and writes a syndicated newspaper column, You and the Law. Through his column, he offers readers in need of down-to-earth advice his help free of charge. "I know it sounds corny, but I just love to be able to use my education and experience to help, simply to help. When a reader contacts me, it is a gift."