The lifecycle of financial receivables and collection of zombie debt

On January 30, 2012, Historic City News published an article titled, “Check before you pay Asset Acceptance LLC” after we uncovered hundreds of collection lawsuits filed in St Johns County Court by the company who is in the business of buying delinquent debts. Current debt is bought and sold by lenders and investors all the time; but, nearly ten years ago, a cottage industry that purchases final judgments and delinquent debt, at very deep discounts, was born.

In most cases, depending on the type of debt and how it was made, you have between three and seven years from the date of last payment or charge to bring a lawsuit before the debt is barred. Under certain situations, the Statute of Limitations can be tolled — like a “time-out” while some condition is remedied that prevents your creditor from suing you within the time allowed.

In Florida, in order for a final judgment to have any lien effect, it must be recorded in a registry maintained by the Secretary of State. When the final judgment is obtained and properly registered, the judgment holder has five years to execute. The judgment can be extended for one additional five-year period. So it is fair to say that your creditors have ample time to bring a lawsuit to secure a claimed debt, and ample time to garnish, levy, or otherwise execute after they obtain a final judgment.

Of course the scrutiny of the practices employed by Asset Acceptance brought some changes. Unfortunately for consumers, new companies pop up, and everyone looking to make a fast buck is looking for another angle that might pass muster.

An example is Portfolio Recovery Associates. PRA Group, Inc. is a debt buyer based in Norfolk, Virginia; among the few that are publicly traded corporations (NASDAQ: PRAA). They advertise that they are “acquiring and collecting nonperforming loans”. They describe their role as being “an integral part of the financial receivables lifecycle.” But what about AFTER that lifecycle expires?

It has come to our attention that one reader received a notice from Portfolio Recovery Associates attempting to collect a ten-year old debt, to a company that is no longer in business, over money the reader says was paid within the first year after it was due. We checked Florida public records and could not locate a judgment at any time within the ten-years since the reader reports that this debt was originally made.

Since the debt was not created under an installment contract, we believe the original creditor had up to five years to sue if they thought they were still owed money. Apparently they didn’t. If that’s the case, why is our reader hearing about it now?

On investigation we discovered that, unlike what we found in the Asset Acceptance case, PRA Group and its affiliated companies are intentionally buying portfolios of debt that are not just delinquent, but on which the statute of limitations has already run.

If the consumer recognizes the debt and never paid it, and they now have the money to pay, they have that option. Doing so will not improve their credit score. Since the debt is legally barred, there will be no credit reporting, period. Likewise, there will be no lawsuit now, no matter how large or small the debt, because the time for that has long past.

EXCEPT — what you may not know is that if you make even a partial payment of $1.00, or negotiate payment terms to settle the debt with the collector, you may inadvertently RESTART the statute of limitations. At that point, the options in your favor disappear.

We found a two-line statement on the collection notice (which we highlighted for emphasis) that satisfies one of the FTC requirements that came to be in the wake of the Asset Acceptance settlement. It reads:

“The law limits how long you can be sued on a debt and how long a debt can appear on your credit report. Due to the age of this debt, we will not sue you for it or report payment or non-payment of it to a credit bureau.”

How many consumers are deceived by this practice, we cannot determine. If circumstances present themselves making it impossible for you to pay your bills on time, you should contact your creditors. If you need assistance, only deal with a bona fide non-profit consumer credit counseling service — never give money to a credit repair clinic.

And just because you get a collection notice demanding payment of a zombie debt from years past, investigate your obligation before you agree to pay.