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Bankruptcy issues: what is zombie debt?

Arizona residents may love their zombie movies and shows, but zombie debt not so much. A zombie debt is one that is old and generally not owed any longer, but like zombies in television shows, continues to haunt the debtor. Recently, many debtors have sued big banks for not killing their zombie debt, allowing it to carry on as unpaid debt even though it was cleared in bankruptcy, harming their credit report.

Borrower's lawsuits claim that zombie debts are not only inaccurate, but that they also affect credit scores negatively. This in turn makes it harder for people to get jobs, find places to live and even borrow money at low interest rates -- basically making it harder for people to get the fresh financial start they were trying to get by declaring bankruptcy. Even though the debt was discharged in bankruptcy, debtors may be pressured into repaying the debt just to improve their credit score.

Several United States lawmakers have recognized the problem zombie debt poses to hardworking people across the country and have proposed a bill to kill zombie debt for those whose credit card bills survived bankruptcy. The act, known as Consumer Reporting Fairness Act of 2015, would force big banks and other creditors to inform credit card companies that a bankruptcy judge has canceled a person's debt. It would also allow debtors to sue those who have not corrected their credit reports for damages.

While the country waits to see how far this bill will go, Arizona residents considering filing for bankruptcy to overcome their financial challenges should not shy away from the process. Wiping out credit card bills is just one of the benefits the process can offer debtors on the journey to a new financial beginning.

Source: The Wall Street Journal, "A law to kill zombie debts that outlasted bankruptcy," Kay Stech, July 28, 2015

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