Zombie Debt: Don’t Let It Rise to Bite You

Imagine you went through a rough financial patch several years ago. It was hard, but you're feeling proud of yourself for getting back on your feet. Out of the blue, you receive a call from a debt collector saying you still owe money. 

They might be referring to zombie debt, and as scary as the name may be, you have no reason to be afraid of it! Here, we'll tell you about zombie debt, the people who attempt to collect on it, and what you should do if a zombie debt hunter ever contacts you.  

This article is educational in nature and not meant to answer questions about your specific situation. For personalized legal advice, consult with a qualified attorney licensed to practice law in your state.

What Is Zombie Debt? 

Zombie debt is a term commonly used to refer to debts too old to collect, debt that was discharged in bankruptcy, or debt that collectors can’t properly document—but someone is trying to get you to pay it anyway. In other words, the debt has come back to life, like a zombie. 

A statute of limitations on debt is the amount of time a creditor can legally pursue you for payment. The debt never goes away, and if it was your debt it will always be your debt. But after a certain number of years, the creditor no longer has the right to sue you for it. (They could still try, which is why you should understand these details.)

In most states, the statute of limitations for debt ranges from three to 20 years, depending on the type of debt. The majority of debt becomes uncollectible after three to six years.  Still, some debt collectors may keep aggressively contacting you to convince you to pay zombie debt. According to the Consumer Financial Protection Bureau, 56% of debt collection complaints involve zombie debt. 

Here are a few things zombie debt collectors don't want you to know:

• Once a debt is past the statute of limitations, the creditor has no legal standing to collect it or sue you for it.

• If a debt collector contacts you and you’re quite sure the debt is uncollectible, you have a right to get their address and send a certified letter with a return receipt saying they can't make contact again unless it's in writing or they plan to sue you. Since zombie debt collectors often know they don't have a leg to stand on, they might disappear after receiving such a letter. If the statute of limitations has not expired, think twice before sending a cease-and-desist letter. Doing so could lead to getting sued since the debt collector can't contact you any other way. 

• Debt collectors don't want you to know that making a payment can reset the statute of limitations clock and make the debt collectible again. That’s why they sometimes ask for a small partial payment against the debt. 

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More About Statutes of Limitations for Debt

The statute of limitations tells creditors how long they have to legally collect debt from you. Once that statute of limitations has expired, the creditor no longer has the right to try to collect it. If they do try, they’ve created a zombie. 

If you make a payment, you could reset the statute of limitations clock, making the debt fair game for collectors. 

Specific statutes of limitations depend on the type of debt, state in which you live, and whether you had a written or oral agreement. Here's a general breakdown of average statute of limitation timelines:

• Credit card debts: Most states impose a statute of limitations on credit card debt of three to six years, although there are three outliers. In Wyoming, it’s eight years, and in Rhode Island and Kentucky it’s 10 years. 

• Personal loans: Typically fall in the written contract category and may have limitations ranging from three to 10 years, depending upon your state.  

• Mortgages: The statute of limitations in most states is between three years and 10 years. 

An important note about statute of limitations: Given the number of factors that go into determining the statute of limitations, and the legal variances from one state to another, it’s really important to talk to an attorney who practices in your state before deciding how to deal with a debt collector. 

Types of Zombie Debt

There are several kinds of zombie debt, depending on the circumstances. The most common types include: 

• Time-barred debts. These are old debts, past the statute of limitations, that legally can’t be collected. The clock starts to run from the last activity on the debt, and when time is up, collectors can no longer pursue legal action against you. Even so, they might still try to convince you to pay. 

• Errors. Errors happen often in the debt collection industry. For instance, debts get sold to debt buyers. Your debt could end up on a list that gets sold multiple times. If this happens, a debt collector might contact you after you’ve paid the loan off or debts have fallen off your credit report. 

• Fraudulent debts. Unfortunately, sometimes fraudsters rack up debt in someone else’s name. You aren’t responsible for repaying debts that are the result of identity theft or fraud. But you might have to go to court to prove the debt isn't yours. 

It's important to note that forgotten debts aren't zombie debt. If you simply overlook or forget about a loan or credit card account, collectors could still come after you if the statute of limitations hasn't run out. 

How Zombie Debt Rises

There are many reasons old, uncollectible debts can suddenly rise from the dead.  

Here are three situations where you're more likely to end up with zombie debt.

1. When debt is resold to different collectors

The same debt can be sold multiple times. Each time the debt changes hands, there's a chance a mistake will be made. Imagine that you settled a credit card for less than you owed. Your deal with the credit card company was that the debt would be considered settled once payment was made. As far as you and the credit card company are concerned, it's a done deal. 

However, if one of the new debt collectors sees that old debt and marks it as outstanding, they could try to collect money. All it takes is a simple human error made during the debt sale process to create zombie debt. 

2. When there's a mistake on your credit report

Mistakes on your credit report could happen in a couple of ways. It's possible that a creditor sent incorrect information about your account to the credit reporting agencies, or that someone processing your credit report typed in the wrong information. With millions and millions of credit reports to process, imagine how easy it would be for a person to overlook the fact that you recently paid off an auto loan. 

Rather than being listed as paid in full, your report may show that you still owe money on the vehicle. Once a collection company believes you still owe money on a loan, it's their sign to move in and attempt to collect.

3. When debt collectors violate the law and hope you don't realize it

Every industry, including debt collection agencies, has good players and not-so-good players. There are those that stick to the letter of the law, and those who've learned to work around the law to pressure you into paying them money. For example, debt collectors are not legally allowed to harass you over the phone or through any other form of contact. They're not supposed to lie to you or make threats. 

And yet, there are those who'll start calling early in the morning and dial your number all day long (by law, a debt collector can't call you more than seven times within a seven-day period). There are debt collectors who'll tell you that you'll be sued if you don't pay or they'll place a lien against your property. Unless they're actually going to do one of those things, they're breaking the law by lying to you. 

It's possible that a debt collection agency knows that the statute of limitations on a specific debt has expired, but will come after you for the money anyway, hoping you don't realize what they're up to. For a company that purchases debt for pennies on the dollar (as debt collection companies do), any money collected is profit, and there’s no way to know whether they’ll violate the law to get that money. 

Identifying Zombie Debt

Spotting zombie debt sometimes requires a little sleuthing. You are your own best advocate, so look for clues and verify facts. 

One of the first signs of zombie debt is collection calls or letters out of the blue. If you don’t recognize or remember the debt, it’s time to dig deeper. Ask for written validation of the debt. Debt collectors are required to show you proof you owe it.

Another red flag is when very old debts reappear on your credit report. Collection accounts should be removed from your credit report after seven years. The clock starts on the date of delinquency, which is often six months after your last payment due date. 

You can check your credit reports online for free, and should do so at least once a year. If something looks suspicious, dispute the credit report error with the credit reporting agencies. When you initiate a dispute, the credit bureau must investigate and notify you of the results. If it turns out the debt isn't legitimate, it must be removed from your credit report. 

Be suspicious if debts you’ve already paid show up. This could mean that a paid-off debt has been sold to a new debt collector. If a debt you've squared away comes back to haunt you, it’s helpful if you can produce evidence that you paid it off. That kind of documentation is usually your best defense against invalid claims.

Can You Ignore Zombie Debt?

You shouldn’t ignore a debt collector. Ignoring your debts could lead to lawsuits and other financial consequences. It’s better to fight. In some cases, you can kill zombie debt in minutes.

If the debt is legally unenforceable because it's past the statute of limitations, the debt collector can't sue you for it. But they might still call, send letters, or bug you on social media. Write a letter asking them to stop contacting you. Don’t acknowledge the zombie debt or make a payment of any size, or you might restart the clock on the statute of limitations. Then the zombie has been given a new life.

Fraudulent debts or errors need to be addressed quickly to protect your credit score. File a dispute with the credit bureaus as well as a police report if your identity was stolen. Gather any paperwork that could prove the debt isn’t yours.

When dealing with old debts that are still collectible, address the situation head on. One option is to contact the debt collector and negotiate a settlement if possible. 

If you have access to cash, you can offer a lump sum that’s less than the amount you owe to try to settle your debt. You can also ask for a payment plan to repay the full or reduced amount. There are no rules about what you can or can’t ask for. 

Know Your Rights Under the FDCPA 

The Fair Debt Collection Practices Act (FDCPA) is a federal law enacted in 1977 and helps you understand how to deal with debt collectors. The FDCPA aims to protect consumers from abusive collection practices by establishing how debt collectors can communicate with consumers. Here are three key rules debt collectors are required to follow:

• Abuse: Debt collectors cannot use abusive, deceptive, or unfair practices when attempting to collect debts. They can't harass you, lie to you, or threaten legal action they don't intend to take. 

• Communication: Debt collectors cannot contact you at inconvenient times (like before 8 a.m. or after 9 p.m.). They can't contact you at work if you've told them you can't be contacted there, and they must cease communication if you request it. 

• Validation: Debt collectors are required by the FDCPA to provide you with written validation of your debt, including the amount they believe you owe and the creditor's name. 

The Debt Validation Process

Imagine a debt collector sends you a letter claiming you owe money on a personal loan. However, the letter lacks verifiable details. Unless they provide you with all information required by the FDCPA, the debt collector must send you written debt validation containing the following:

• The amount of the debt.

• Name of the creditor to whom the debt is supposedly owed.

• A statement saying that you have 30 days to dispute the validity of the notice. If you fail to dispute the debt, or any portion of the debt, it will be assumed valid by the debt collector.

• A statement saying that if you notify the debt collector within that 30-day period that you're disputing the debt, the debt collector must obtain verification you owe the debt or a copy of judgment against you. 

• A statement indicating that if you send a written request within 30 days the debt collector will provide you with the name and address of the original creditor, if it's different from the current creditor.

If you're dealing with zombie debt and the debt collector has no right to collect, they may back away from the situation once you've asked the right questions and put the ball back in their court. 

Who Collects on Zombie Debts?

So-called debt scavengers are a kind of debt collection agency that buys old debt, hoping to collect some or all of the money, even if it’s past the statute of limitations.

There’s no standardized method of buying and selling debt, so some old loans are bought and sold using something as simple as a spreadsheet on a thumb drive, or even over email. While some debt collectors behave ethically, they may not know they’re trying to collect a debt that's  already been repaid, was never owed in the first place, or is uncollectible.

What kinds of debt do zombie debt collectors target?

Credit card debt is the most common form of zombie debt that debt scavengers go after. Since the government regulates banks so closely, they can’t keep unpaid credit card debt on their books for more than a few months. After that, they often sell the right to collect unpaid credit card balances to debt collection agencies for pennies on the dollar.

Once a debt collection agency has bought the debt, it can be bought and sold multiple times—even long past when agencies can sue you for repayment.

How do debt collectors try to make you pay zombie debts?

It's important to understand how to deal with collection agencies. The worst debt scavengers may be more than willing to act unethically or possibly even illegally to get you to pay zombie debts. One common tactic is asking you to admit you owe an old debt and make a token payment. That can restart the statute of limitations and put you on the hook for the debt.

Other tactics are outright illegal. If a debt collector threatens to call the police or have you arrested and put in jail for not repaying an old loan, report them to the Federal Trade Commission. The Fair Debt Collection Practices Act addresses many common abuses, so it’s important to know how to deal with collection agencies to protect yourself. For example, debt collectors can’t share your personal financial information with anyone else, like your friends, family, or employer, to intimidate you into paying old loans.

A debt collector may threaten to garnish your wages or take your property. They may lie and say a court will rule against you and they'll win in court if they sue. If you ask them to stop contacting you, an unethical debt collector may try to convince you that you have no way of making them stop. These are all lies. 

A debt collector can't claim to be a government representative, attorney, credit bureau employee, court personnel, or the employee of a fake company. They also can't tell you they work for the company where an original debt was incurred unless they actually work for that company. 

Employing modern tactics

A debt collector is prohibited from publicly posting about your debt on Facebook, Instagram, or any other form of social media where it will be seen by others. They can contact you via private message, but only if they identify themselves as debt collectors.

A debt collector can only leave a limited-content message if they leave you a voicemail. A limited-content message offers only the bare bones of why they're calling and does not reveal the details of the debt. This law is meant to protect you in the event someone else listens to your voicemails. 

Fishing around

Remember, these people bought your zombie debt for pennies on the dollar and are motivated to squeeze as much money from you as possible. If you decide to talk to them (you don't have to), it's important to know they may fish for information you don't want to give them.

For example, if they ask for your Social Security number, where you bank, or how much money you can afford to pay, it's time to break contact. These questions are designed to get as much information as possible and leverage it for payment. 

Keep These Weapons in Your Arsenal to Protect Yourself from Debt Scavengers

Here are a few tools that can help you fight zombie debt and protect yourself from those trying to collect. 

Validate the debt

Debt collectors must prove you owe them money. If a debt collector can’t provide you with written evidence that they legally own your loan, they can’t sue you to collect it. As soon as a debt collector contacts you about an old loan, ask them for documentation. They’re legally required to provide proof.

Stop the harassment 

Debt collectors can’t contact you at work if you tell them you’re not allowed to receive calls there. They also can’t discuss your finances with anyone but you or your spouse. If they keep calling, tell them you know your rights, and that you’re alerting the Federal Trade Commission and your local attorney general about the violations.

Don’t resurrect the zombie debt 

If you admit you owe a debt, even over the phone, debt collectors may be able to use that to reset the statute of limitations and the seven-year credit reporting period. It’s better to avoid discussing old debt with a collector.

Moving Forward

While there are steps you can take once you've been contacted by a debt collector, the following actions can help prevent zombie debt from occurring in the first place:

• Monitor your credit reports: Order a free copy of your credit report from the big three credit bureaus—Equifax, Experian, and TransUnion—through a reputable site like AnnualCreditReport.com. You can order a free report as often as once a week (although every six months or so should be sufficient. What you're looking for are any debts that aren't yours or debts you've already paid off but still show a balance. If you find an error, dispute it with the credit bureaus. Bureaus have 30 days to investigate and remove any information that's wrong. 

• Create a debt inventory: A debt inventory consists of a detailed list of all the money you owe, including information for each debt. For example, list the creditor's name, current balance, interest rate, and minimum monthly payment. The idea behind a debt inventory is to remind you how much debt you have outstanding so an unscrupulous debt collector can't trick you into believing you owe more. 

• Build a file: Once you've paid a debt off, keep all records associated with that debt in a file. As each new debt is paid off, add it to the file. 

• Never share personal information: No matter who asks, never share personal information. This includes who your creditors are, bank account numbers, where you bank, your Social Security number, your mother's maiden name, the name of your first pet, or how much money you have. Identity thieves need very little personal information to take over your identity, create zombie debt, and ruin your credit. 

• Look into identity theft protection: Consider signing up for identity theft protection. Such plans monitor your personal information for signs of misuse and offer assistance if someone steals your identity. Plans may include ID monitoring services, identity restoration assistance, and financial reimbursement for legal fees and lost wages due to theft. Plans generally run from $10 to $40 monthly, depending on the level of protection. 

How to Dispute Zombie Debt

Knowledge is power when it comes to debt collectors and zombie debt. You have rights, and these steps you can take to stop a collector in their tracks. 

Request a debt validation letter

Under federal law, you have a right to demand a debt validation letter within 30 days of first contact. The debt validation letter must include:

• Which creditor the collector represents (in other words, who you supposedly owe money to). 

• The amount you owe.

• An opportunity to dispute the debt within 30 days. 

• A statement saying if you dispute the debt, the debt collector must provide written evidence of the debt within another 30 days. 

• Notification that if you send a written request within 30 days, the debt collector will provide you with the name and address of the original creditor.

If a debt collector is unable to prove the debt is yours, they must stop pursuing you for payment. 

Never acknowledge or pay the debt without verification

Let's say you start doubting yourself and want to get the debt collector off your back, so you pay a portion of what they say you owe. Either admitting the debt might be yours or paying money toward it could reset the statute of limitations, bringing dead debt back to life. If contacted, request proof and check your state's statute of limitations on debt collection. 

Send a cease-and-desist letter

You have the legal right to protect yourself from harassment. You can do so by sending a cease-and-desist letter, demanding they stop contacting you. It's a good idea to send the letter via certified mail with a return receipt. Once they receive the letter, a collection agency can only contact you to confirm they'll stop or to inform you of legal action (but only if they actually intend to take legal action). 

Contact credit bureaus

If your credit report from one (or more) of the credit bureaus indicates that you owe debt you don't owe, file a dispute with the credit bureau in question. They have 30 days to investigate your dispute and if they're unable to prove the debt is yours, must remove it from your credit report. 

Filing complaints 

If you're harassed by a zombie debt collector, file complaints with the Consumer Financial Protection Bureau (CFPB), the Federal Trade Commission (FTC), and the state attorney general for your state. These organizations have the tools needed to hold debt collectors responsible for their actions. 

Keep all documentation

Keep a record of any contact you have with the debt collection agency. Make a note of the date, time of day, and collector who contacts you. Also, note any threats or lies they tell you in an effort to get you to pay. 

Consider contacting an attorney

If things are getting out of hand or the collection agency intends to sue you, you may want to contact an attorney who's familiar with statute of limitation laws in your state and can help you plan your next steps. 

Choose Your Method of Attack 

If you’re contacted about a debt you don’t owe, tell the debt collector you know your rights and won’t pay anything you don’t have a legal obligation to pay. Next, contact each of the credit reporting agencies to have the debt removed from your credit report. 

If you do owe the debt, you need to explore different options. You have a couple of choices, including the following: 

• Offer to settle the debt, on your own or with the help of a professional debt settlement company. 

• Fight the debt in court if you’re sued. If you haven’t resurrected the zombie debt and the statute of limitations has passed, collectors can’t win a judgment against you. It's also worth noting collectors sometimes don't show up in court, especially if you only owe a small amount. If the collector doesn't come, you might win your case by default. Remember, debt collectors buy millions of dollars in debt, expecting only to collect a tiny percentage of that amount, so going to court often isn't worthwhile for them.

The zombies can’t survive against you once you’re prepared for the battle.