What You need to Know About Zombie Debt

When someone who owes a debt doesn’t pay, the lender will usually take action – by phone, letter, or even a court case – to collect the money they are owed. In some cases, though, the debtor simply can’t pay or can’t be found. In other cases, the debtor files for bankruptcy and, depending on the kind of debt owed, the debt may be put on hold, renegotiated, or discharged completely.

Sometimes, however, old debt comes back to life and is referred to as “zombie debt.”

 Some of the most common scenarios of zombie debt are the following: 

• Unpaid debts which are beyond the statute of limitations 
• Unpaid debts owed, but forgotten
• Unpaid debts wiped out with bankruptcy
• Debts already settled with the creditor
• Fraudulent charges from identity theft
• Fake debts which “creditors” claim are owed as part of a scam

How does debt come back to life?

Creditors often remove old debt from their ledgers and sell it to third-party collectors. In some cases, the debts are legitimate, but in other cases they aren’t. When debts are sold and re-sold, the records may be incomplete or inaccurate. Think of it as a game of “telephone.” The more times a debt is passed around, the more chance that the related information is wrong. 

When Debt Collectors Call
The legal treatment of old debt will depend on where you live and the type of debt in question. Depending on the law, debt collectors are not allowed to sue for old debt if the statute of limitations has expired, however, they are still allowed to contact you and ask to pay off the old debt. Check the statute of limitations for each U.S. state and Canadian province for more information.

However, if you start to make payments or acknowledge the debt in some way, the action may restore the collection agency’s legal right to take the matter to court. Never agree to make a payment on a debt you aren’t sure about, even if the collection agency puts pressure for payment. 

The best way to start is by doing a thorough investigation. Search through old records to find bank statements and notices of payment. Gather as many facts as possible about the debt in question. Next, within 35 days of initial contact and without acknowledging the debt is yours, ask the creditor for a debt validation letter. The Fair Debt Collection Practices Act (FDCPA) requires the debt collection agency to provide you with written proof of the debt’s validity or a judgment against you, as well as the name and address of the original creditor if the debt was resold. Once this information is gathered, determine if the debt is really yours and if it still needs to be paid.

If the debt was yours, but you already paid it, write a letter to the collections agency and demand that they cease contact. Include proof of payment if available. The collections agency is legally required to stop contacting you under the FDCPA.

If the debt is not yours or is invalid, write a letter challenging its validity and where applicable, include any proof you may have.

If you do owe the funds and you can pay the debt, resolve the issue by first getting a payment agreement in writing and then eliminating your unresolved debt.

If you do owe the funds, but you can’t pay the debt, you can pursue debt relief through bankruptcy or credit counseling.

When deciding which route to take, keep in mind that once a debt is past the statute of limitations, collectors can no longer sue you to get payment. In addition, the FDCPA stipulates that any unpaid debts should be removed from a person’s credit score after seven years. If you decide to begin paying or pay in full an old debt, it could restart the statute of limitations and affect your credit.

For More Information

Learn more about ways your identity can be compromised without even knowing it. If you need to contact a collection agency to dispute a debt, request a debt validation letter or to ask the collection agency to cease contact, use these templates on Consumer.gov.  

Remember that while most debt collection agencies are legitimate, there may be times when a scammer is phishing for information. For more information on how to avoid this scheme, visit BBB.org/AvoidScams. If you’ve been targeted by a debt collection scam, be sure to report it to BBB.org/ScamTracker. 

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