An elderly widow sits freezing in her flat. She is trying to pay off
a £2,000 debt before she dies, because she's frightened that the
debt will be passed on to her children if it is not cleared. The shame
of that happening dominates every hour of her waking day, and enters
her dreams at night. She has worked out that if she does not use her
heating and skimps on food "a bit" then she'll be able to
pay off the debt in three years, and hopefully survive till then.
A single mum struggling with two restless children and trying to balance
their needs with a full time job is paying a disproportionate amount
of her income trying to service a debt of £6,500 which has accumulated
when she became unemployed from a previous job three years ago. She
fears any future employer looking at her credit record held by Equifax
or Experian, which she knows will list the CCJ against her for another
6 years. One of her ambitions is to pay off the debt completely and
wipe the offending judgment off her file.
The family which has unsecured debts of £16,000 accumulated over
the years. They decided to deal with the various unsecured debts (credit
cards, a store card and the overdraft) four years ago by consolidating
it into a secured loan, but defaulted on this loan a year later when
the expected promotion didn't come through and their third child was
born. The debt was sold to "one of those debt collecting companies"
at that time and they've been paying £170 a month to this company
and hope to clear this in five years. The debt company are really nice:
they've agreed to freeze the interest. Imagine how terrible life would
be if they hadn't done that!
The problem with all of the above situations is that the debt no longer
exists. The people described in these fictional descriptions of real-life
misery are all trying to service a debt which has been written off by
the original lender, a so-called zombie debt.
The original lender has written off the bad debt. HMRC, the tax office,
has recognised this by giving them a small tax break on their business
loss. Therefore no less an authority than the Crown recognises that
the debt no longer exists.
Yet there must be hundreds of thousands of people in the UK alone –
perhaps even millions – who are servicing debts which no longer
exist. Each one of them is doing so because of a widely entrenched belief
that some point of “honour” is being served in paying money
every month for these written-off zombie debts.
The whole system becomes even more bizarre when we realise that the
debt purchasing company has paid the original lender pennies on the
pound for title to the debtor accounts. So, for example, let’s
take a bad debt of £2,400 on a credit card. The original borrower
has fallen on hard times and has defaulted on the monthly payments.
Once the bank has decided that this is a lost case it sells it to a
debt purchasing company (such transactions are in job lots of hundreds
or thousands of such debtor accounts at the same time) for, say 8 pence
on the pound.
So the debt purchasing
company buys the £2,400 debt for £192. They are now the
new owner and should, by law, send the debtor what is known as a Letter
of Assignment announcing the fact.
Yet this new owner,
the debt purchasing company, is still pursuing the debtor for the full
There is an earlier stage in the origin of the debt which makes the
whole zonbie debt idea even more untenable, unjustified and just plain
crazy, and that is the Fractional Reserve System.
use what is known as the Fractional Reserve System (or Fractional
Reserve Banking) and this is how banks have operated for generations.
It’s how banks work.
When a bank
lends you money it does not actually lend you its own money, as most
people believe (nor does it lend you anyone else’s money). All
that is required is that the bank have at least 10 percent of the
loan sum in its deposits (or reserves) in order to complete such a
transaction. The bank obviously has that amount, so that’s okay.
The bank then creates your loan account and then CREATES – there
is no other word for it – the money which is the loan.
The loan has
been created from nothing. One minute it wasn’t there. The next
minute, by the authority of the bank, it is there, in your loan account.
The loan has
therefore been created with no loss to the bank. By giving you this
money they are not inconveniencing themselves in any way. Yet you
are now legally responsible for paying that money back to the bank
(which wasn’t theirs in the first place) PLUS a large amount
of interest over the years. You have to do this by law. If you default
on this then bad things will happen to you. If the loan is secured,
or if the loan is a mortgage, then the bank will take your house from
you if you default for more than a number of months.
this money did not belong to the bank in the first place. It would
be most accurate to say that the bank had authorised its creation,
because that is what banks do. And that is how banks make their money.
In an odd
sort of way, the bank is lending you your own money….
is how the loan comes to exist.
Stages Of A Zombie Debt
Now we can see the
three stages of the zombie debt:
- The bank creates
the loan amount from nothing and you must start paying it back regularly
and with interest.
- You default on
the loan and it becomes a “bad debt”.
- This debt account
is sold to the debt purchasing company for pennies and they then pursue
you for the full amount. At around this time the original debt is
written off by the taxman and the bank compensated for their “loss” according to law.
In view if the fact that everyone in the debt purchasing industry knows
that the account is going to be written off at some stage, it is not
strictly true to say that the bank (or original lender) had sold the
debt to the DPC. It is more accurate to say that the bank sold the DATA
relating to the debt to the DPC.
In some cases this
data is very patchy. Sometimes there is only a name and telephone number,
or just a name and address, and the DPC has to take it from there by
using their cunning and wiles so that they can begin their campaign
to get the full amount of the original debt from the original borrower.
In such cases, where data supplied from banks is bad, the zombie debts
come very cheap.
Other cases where
the debt can be bought by the DPC very cheaply is where the debt is
old. The nearer it is to being what is known as Statute Barred the cheaper
debts are debt accounts which have been dormant for over six years,
after which they cannot be pursued, by law, although the law can be
a bit tricky as to what exactly constitutes a Statute Barred debt. For
example, if a debt is five years old and the bank or DPC writes to you
about it and you write back, then the clock starts ticking again, because
you have acknowledged it and it is therefore not dormant. Also, debts
which would otherwise be statute barred which are themselves the subject
of a Court Order cannot be considered statute barred and do not come
under the terms because of the Court Order. There are other matters
which can affect the status of statute barred debts.)
It is possible for
a DPC to buy a job lot of old debts (which have been written off years
previously) extremely cheaply, but by wiles, cunning and bits of plain
old trickery make a good profit out of them. Zombie debts can come in
all shapes and sizes.
Some DPCs will use
the law to good effect if the debtor is a homeowner. The DPC can secure
the debt on property (your property) by means of a Court Order or CCJ
and that means that if you don’t pay them what they want for it
the DPC can then apply to the Court for an Order For Sale or an Order
For Possession and make you homeless, while pocketing from the proceeds
of your house.
& DPC Law Firms
Most debtor accounts
are unsecured (like credit card accounts, store cards and personal bank
loans, etc.) but by means of a CCJ the DPC can convert you unsecured
loan into a secured loan and then your life becomes a bit more nightmarish.
A symbiotic relationship
between a DPC and a lawyer is useful; sometimes all it takes is a lawyer’s
letter or a threat of court action to make the victim cough up. Some
debtors even decide to sell their own houses to pay the unsecured debt,
so great is the threat of the CCJ.
Several DPCs share
premises with these “letterheads for hire” lawyers. Some
DPCs set up, or own, law firms whose sole function is to convert unsecured
loans into secured loans for the above reasons. Some DPCs like to keep
a distance from the law firm, though examination at Companies House
will show that both the debt purchasing company and the legal firm are
owned by the same people.
is no ownership relationship, but the DPC uses a specific law firm for
its legal work on a continual basis, for any number of reasons.
Whatever the relationship,
the profits resulting from this unholy relationship between DPC and
single-purpose solicitor is enough to justify the DPC having the solicitor
there in the first place.
Isn't it amazing
that a debt is the only thing, apparently, that can be written off then
come to life again. Imagine if that were to happen in the second hand
car business. Imagine someone buying a lump of metal which has just
been squashed and tried to sell it to you at the price of a new car.
You'd have a good chuckle. Now imagine if the law was on the side of
the spiv trying to get you to buy the squashed auto for the full asking
price, and it turned out that you were obliged to buy this nonsense
or the spiv could apply to the court for your home to be taken away
Because that's how
the law stands at the moment....