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

“Zombie debt” is a term commonly used to refer to debts that are too old to collect, debt that was discharged in bankruptcy, or debt that collectors can’t properly document. Zombie debt can also refer to debts resulting from an identity thief opening credit cards or loans in your name. 

You can’t be sued for debt past the statute of limitations, but making a payment can reset the clock and make the debt collectible again. Unfortunately, creditors usually don't want you to know that. Some debt collectors keep aggressively contacting you to try to convince you to pay zombie debt. 

Types of Zombie Debt

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

• Time-barred debts. These are old debts that legally can’t be collected. Every state has a statute of limitations. The statute sets a maximum time limit for collecting debt. 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. 

• 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. 

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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:

• When debt is resold to different collectors.

• When there's a mistake on your credit report, such as a paid debt that’s reported as past-due. 

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

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 you should do so at least once a year. If something looks suspicious, you can 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 really 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 also 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 yours and are still collectible, you should 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. 

Who Collects on Zombie Debts?

So-called “debt scavengers” buy 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 even know they’re trying to collect a debt that has 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 so closely regulates banks, 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 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?

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 for not repaying an old loan, you can 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.

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 within five days.

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.

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. 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. Remember, if you haven’t resurrected the zombie debt and the statute of limitations has passed, collectors can’t win a judgment against you for that debt. 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.