“Bankruptcy Judge Strikes Back Against Zombie Debt”


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 file bankruptcies for consumers but we do litigate bankruptcy issues including when a creditor or collector tries to collect a discharged debt. If you have questions or concerns feel free to contact us through our website or by calling 205-879-2447.

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