Most of the time, however, such a debt is years old. If this company can get just one person to repay a $1,000 debt in full, that covers costs to purchase 25 similar loans. That is, if the original debt was $1,000, the new creditor will pay about $40 for it. Companies that buy uncollectable debts can pay as little as 4% of the face value of the loan. Since the zombie debt collection company pays so little for the debts they acquire, getting paid on even a fraction of the loans makes for a profitable business model. Uncollectable debts are often sold for a small percentage of their original face value to other debt collection companies, even if the statute of limitations on whether the debt can be collected has passed. While the original lender may no longer find it worth their while to try to collect, other companies do. Those old debts still have some value, however.

The statute of limitations varies by state and type of debt. At that point it has passed the statute of limitations, and the debtor is no longer legally required to pay it. Most lenders will stop trying to collect entirely once the debt is three to six years old. After a while, it is not cost-effective for the lender to continue collection attempts and the accounts are thus “charged off” and taken off the lender’s books. In many situations, however, the debtor has moved away and can’t be found, or simply has no money. For $79 (or just $1.52 per week), join more than 1 million members and don't miss their upcoming stock picks. Motley Fool Stock Advisor recommendations have an average return of 397%.

Zombie spend money and trash it