Resolving a legal or financial problem can be
difficult. But imagine the surprise and
frustration when a former debt obligation,
retired long ago, rises again. Here are
the common "zombie" debt scenarios that
clients often encounter.
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Resolving a legal or financial problem can be
difficult. But imagine the surprise and
frustration when a former debt obligation,
retired long ago, rises again. Below are four of
the common "zombie" debt scenarios that
clients often encounter and how to address
them:
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Contrary to common belief, these court orders
do not release either spouse of the underlying
joint credit obligation. Only ones' creditor can
do that. So when one ex- spouse fails to make
a payment to a joint creditor, a creditor can still
sue both parties to the loan obligation for a
loan default.
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2. LOAN GUARANTY
Many lenders and banks will require an individual to
personally guarantee a loan. A loan guarantor cannot
unilaterally revoke a loan guaranty. Tearing up or
providing a written revocation of one's personal
guarantee has little effect, except to agitate the creditor.
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A guaranty only expires when the subject loan is paid
off, or when both parties to a loan agreement
mutually rescind or revoke the guaranty in writing.
Careful: Make sure one's loan guaranty specifically
references the date and amount of the loan so that
there is no confusion that when the loan is paid off,
the corresponding guaranty is extinguished.
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3. BANKRUPTCY
When a debtor files bankruptcy under a Chapter 13 wage
earner plan, they pay back their creditors according to a
legal formula and court order. Mortgage balances and
monthly payments can be reduced and unsecured credit
card balances can be lowered by as much as 10% of the
existing balances.
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But if a debtor fails to maintain payments
according to court sanctioned payment plan, the
bankruptcy can be dismissed. If dismissed, all of
the debtor's former balances on obligations will
come rushing back to the debtor as if nothing had
ever happened.
9. 4. ZOMBIE DEBT
Each year, billions in unpaid bad consumer debt is written off
by lenders. Often the right to collect on this bad debt is sold
to collection companies. Some debt is so old that it is
considered worthless. It is out of "statute'. This means that
the legal right and time to collect such old debt has expired
by law, and the debtor can no longer be pursued on the debt.
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Collection companies that purchase old debt
do so in hopes to receive even a small payment
from an unsuspecting debtor. This small
payment resets the time limitation for
collection back to the beginning and the
obligation, or "zombie debt", rises again.
11. It is important to maintain a safe place for legal documents and to
monitor monthly payments. Banks, lenders, or title company maintain
loan documents for their own benefit. So good record keeping is helpful
to defend against retired obligations that reappear as unpaid
obligations. Knowing the dates and amounts for loans and keeping
releases and discharges of the same, in a safe place, can mean the
difference of hundreds, even thousands of dollars, and so is vital to
one's financial and legal planning.
CONCLUSION.
12. Since 1990, David Soble has been a real estate and
finance attorney in Ohio and Michigan. He advises
national banks, lenders, loan servicers, consumers and
business owners on residential and commercial real
estate, finance and compliance issues. He has been
involved in thousands of real estate transactions, being
responsible for billions in real estate loan portfolios
throughout his career.
ABOUT THE AUTHOR
www.ProvenResource.com
31800 Northwestern Hwy.
Suite 350
Farmington Hills, MI 48334
Phone: (888) 789-1715
Disclaimer: You should not rely or act upon the contents of this article without seeking advice from your own, qualified attorney.