How to Protect Yourself From Zombie Debt
Written by: Kristy Welsh
Last Updated: July 16, 2017
Whether you are just embarking on the credit repair process, or your credit is in tip-top shape, the last thing you want or need is some old and moldy debt rearing its ugly head. Believe it or not, debt that may have fallen of the credit reporting radar long ago can come back to haunt you in the form of zombie debt.
What is Zombie Debt?
When a person does not pay on a debt, the lender has numerous ways in which they can try to collect the debt from you. Once they give up on you, they mark the account as a charge off and sell it to a debt collector for pennies on the dollar. Fast forward a few years and now this debt is snatched up by a debt "scavenger" who buys up these very old debts in hopes of bullying or tricking you into paying on it. This is usually debt you've forgotten about it, or debt you don't recognize because it was never yours in the first place.
Are You Legally Responsible For Zombie Debt?
Zombie debt is usually debt where the statute of limitations has passed, meaning you are no longer required to pay it. Also, in some cases, the debt buyers are unaware when a debt has been discharged in bankruptcy, again freeing you from any responsibility for the debt. Finally, zombie debt may simply be a case of mistaken identity; either they think you are someone else who actually does owe the debt, or you may be a victim of identity theft.
How Do Debt Scavengers Buy Zombie Debt?
Debt buyers purchase the old debt from the company that was the last to own it. This may be the original creditor, or it may be another debt buyer. In either case, the previous owner of the debt deems it uncollectible, so they sold the debt to a company that wants to give it a try.
What Price Do Debt Scavengers Pay for Zombie Debt?
It is common practice for debt collectors to purchase debt from original creditors for pennies on the dollars. In the case of zombie debt, though, debt scavengers may pay less than a penny per dollar owed. Why? The older the debt, the less collectible it is and, in turn, the cheaper its going rate.
What Types of Debt is Zombie Debt?
Initially, debt buyers focused on old credit card debt. But beware of collection efforts on other types of debt that you may not be legally required to pay, such as mortgage loans, auto loans, or medical bills.
What is the Statute of Limitations on Collecting Debts?
The statue of limitations varies by state and type of debt and you can find out yours by checking out our state by state listing and act accordingly. Zombie debt collectors are counting on you not knowing that the statute of limitations has run out on the debt they are trying to collect from you.
If a Debt Collector Offers to Accept a Small Payment in Exchange for Forgiving an Old Debt, Should I Do It?
No, at least not before you have asked for and received validation of the debt, including its age. If the SOL has expired, you are not required to pay. In fact, if you make a payment or even a promise-to-pay, it will re-age the account, and the statute limitations starts all over again.
Can I Try to Validate the Debt?
Get the address of the debt collection agency that has bought your account. Write them a letter requesting validation, including a copy of the original contract, date and details of your last payment made, and proof that the company does, indeed, own the debt. If they cannot provide validation, or the validation proves the debt has reached the statue of limitations, you are no longer legally responsible for the debt. This is an extremely effective means of dealing with debt scavengers, as they rarely receive the supporting information and documentation they need to prove the debt.
What Tactics Will Zombie Debt Collectors Use?
Debt scavengers know that most of the debt they buy is on accounts for which the borrowers are no longer legally responsible. For this reason, they prey on ignorance and fear. Common tactics include:
- Offering to stop collecting on the debt, or promising not to report it to the credit agencies, if you will just make one small, good-faith payment. This is a bad idea, as making a new payment re-ages the debt, resetting the statute of limitations. This means the collector then has the right to sue you for the full amount. As for reporting to the credit agencies, it is illegal for collectors to report a negative listing on a debt for which the statute of limitations has run out.
- Threatening to sue you if you do not pay the debt. Provided the statute of limitations has been reached, it is illegal for them to sue you anyway. The same is true of bankruptcy charge offs or debt that they cannot prove belongs to you.
- Using abusive language to bully you into making a payment, which is a violation of Fair Debt Collection Practices Act.
- Referring to themselves as a litigation firm. Most zombie debt collectors are not lawyers.
What if I Receive Notice a Debt Collector is Suing Me For a Zombie Debt?
Don't believe it, but don't ignore it either. Through a third-party resource, such as the internet or a phone book, get the address and phone number for the court through which the lawsuit has supposedly been filed (as the debt buyer could very well have used a bogus address and phone number for the bogus filing). Contact the court and verify that the lawsuit is, indeed, legitimate. If it's not, file a complaint with the FTC. If it is legitimate, go through the debt validation process. If the debt, indeed, can be proven you may want to enter into negotiation with the debt collector. Either way, if a debt collector is suing you, it is in your best interest to consult an attorney to walk you through the process.
What if a Zombie Debt Collector Calls Me?
Ask for their address and then hang up immediately without divulging any information whatsoever. Once you have their address, write them a letter requesting validation of the debt and to stop calling you.
What are Zombie Debt Collectors Legally Prohibited From Doing?
Collectors of zombie debt may not report your old debt to a credit reporting agency, or threaten to sue you for the debt, provided it is debt that has already reached its statue of limitations.
If It's So Hard for Debt Collectors to Validate Zombie Debt, Why Do They Even Bother?
Debt scavengers are able to purchase zombie debt at such a low price that they can make a pretty penny even if just a fraction of people pay. Collecting on these debts is big business, at $3 billion a year.
What is My Best Defense Against Zombie Debt Collectors?
Knowledge is King. You need to know your rights and, most importantly, you need to exercise them. You do not have to talk to debt collectors on the telephone. After getting their address, hang up. You can then send them a letter requesting validation of the debt. If they are unable to provide proof, you are not legally required to pay it. And if and when a debt collector crosses the legal line, report them to the FTC and/or seek legal counsel.