If the statute of limitations has expired on debt, or you have paid off the debt, you don’t expect to see it again. A zombie debt, as the name implies, is a debt you thought was cleared or expired but has come back to haunt you. A debt collector is trying to raise it from the dead.
Collection companies often buy bundles of old debt. They pay an average of four cents for every dollar of debt they buy, so anything they collect above that is profit. These debts often have incomplete records. The statute of limitations on these debts may have passed. They may not even be yours.
While zombie debt seems scary, the power to defeat it is in your hands. Here is what you need to know to deal with zombie debt and prevent it from becoming an apocalypse.
Most Common Type of Zombie Debt
The statute of limitations defines the time limit for legal action. You can successfully defend yourself against a collection lawsuit simply by proving that the statute of limitations on the debt has expired. When the statute of limitations expires the debt is said to be time-barred.
Time-barred debt is one of the most common forms of zombie debt.
The statute of limitations varies from state to state. If a collector is demanding payment of an old debt you should learn about the statute of limitations in your state.
The statute of limitations will defend you against legal action. The collector can still try to collect. If you acknowledge the debt or offer to pay part of it, it can reset the statute of limitations. This opens the possibility of court proceedings.
Prior to November 20, 2021, a debt collector could still sue you after the statute of limitations expires. If you showed up in court and proved that the statute of limitations has expired, the judge would dismiss the case. If you failed to show up, the judge could still issue a summary judgment against you.
This practice is now illegal. Regulation F, a sweeping reform of debt collection practices that took effect on Nov. 20, 2021, states that a collector can not sue or threaten to sue over a time-barred debt.
Other Types of Zombie Debt
Zombie debt can show up even if you’ve already paid and settled the debt. Sometimes it never was your debt, in the case of mistaken identity or identity theft. Zombie debt may or may not have any direct correlation to your financial situation. It can emerge at any time.
Previously Settled Debts
If you have already paid off an account but payments were late or delayed, it might reappear as zombie debt. This is also true if you filed for Chapter 7 bankruptcy and had debts discharged.
You should keep written documentation of any debt that is paid, settled, or discharged in bankruptcy. You’ll need it if the debt rises from the dead.
Someone Else’s Debt
Some collectors will contact you about someone else’s zombie debt. This happens in the case of an address change, a new phone number, and also in the case of identity theft or fraudulent charges in your name.
If a collector contacts you about a debt that is not yours, insist that they validate the debt. If it really isn’t yours they will not be able to do it. You can also dispute any entry the collection company has placed on your credit report.
If you suspect identity theft you will need to act immediately. Your first stop should be the Federal Trade Commission’s identity theft portal, where you can report the theft and get a personalized recovery plan.
How Debt Collectors Acquire Zombie Debt
If an original creditor cannot collect a debt, they sell it to a debt collector. If the debt collector fails to collect, they may sell it to another collector, often as part of a large bundle of debt.
Debt collectors acquire zombie debt by buying bundles of old debts from another owner. This is often another debt collector. This can include delinquent debt or bundles of debt from customers with low credit scores. The older the debt, the less expensive it is.
Debt collectors purchase debt for an average of four cents for every dollar of debt that they buy. Older debts are even cheaper. If they collect even a small percentage of the debt, they can make a profit.
☝️ Many zombie debts have passed through multiple collectors. Documentation may be lost in the process, so errors are common.
What To Do About Zombie Debt
If a debt zombie comes after you, don’t ignore it. Take action.
- Check the Notice of Debt. A debt collector must send you a written Notice of Debt within five days of their first contact with you. The notice must include the amount of the debt, the indentity of the creditor, and a statement that you have 30 days to contest the debt.
- Use a Debt Validation Letter. You can respond with a debt validation letter asking for more information. This will help you determine whether the debt is time-barred and wjhether it is really yours. Learn about how to communicate with debt collectors before you need to do it!
- Check if it is time-barred. Even if the debt belongs to you, it might have passed your state’s statute of limitations. The collector will have to provide you with the date of the original delinquency. If you believe the debt may have passed the statute of limitations, do not pay the debt or acknowledge that you owe it.
- Locate the debt on your credit report. Note when the debt was added and when it will drop off the credit report, if it hasn’t already. Most debts will stay on your credit report for seven years.
- Know what questions to ask. The Fair Debt Collection Practices Act (FDCPA) defines your rights . It’s a good idea to know your rights and prepare to respond to debt collectors.
If the debt is legitimately yours and the statute of limitations has not expired, consider a debt settlement. In some cases, you might also be able to wait for the debt to pass the statute of limitations, depending on how close the statute is to expiring and how aggressively the collector tries to collect.
When to Ignore Zombie Debt
If the debt is time-barred, your best recourse will be to ignore the collector. If the debt no longer appears on your credit report and has also passed the statute of limitations, then there is no reason to act on it. You can safely ignore this type of zombie debt.
You can write to the debt collector and instruct them not to contact you. They have to comply.
When to Settle Zombie Debt
If the debt is legitimately yours, still appears on your credit report, or is not yet time-barred, a settlement could be your best option.
Debt collectors acquire these debts for small amounts and may be willing to settle at any profitable level. Debt settlement is a way to clear the debt and remove the stain on your credit score.
When you settle debt, you pay a smaller, agreed-upon amount in exchange for confirmation in writing that the debt is cleared. The debt collector gets a profit and you get the zombie away from your door.
How to Protect Yourself
The best way to protect yourself from zombie debt is to clear all past debts and to carefully track any new debt you take on. If you already have debt that is nearing the statute of limitations, you can choose to leave it, or pay it off if you can.
For zombie debts that reappear, remember that you have the power to question or negotiate the debts.
You can safely ignore time-barred debts. If the debt is not yours you can inform that collector that it’s not yours and you will not pay it and dispute any entry on your credit record. If the debt is yours and not time-barred you can offer a settlement.
In each of these cases, you need to take the initiative, make a decision, and execute your decision. You have the power and you should use it!