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What is zombie debt and how should you deal with it?

What is zombie debt: image shows woman's hand and bills
(Image credit: Getty)

Zombie debt is simply debt that you thought was dead and buried but has somehow come back to life.  

If you’re chased for payment of a zombie debt, whether it’s for an old credit card or personal loan, agreeing to pay it might seem like the best solution. But paying a zombie debt can actually make matters more complicated. 

That’s why it’s important to know your rights when it comes to negotiating debt collection, as well as how to deal with this type of debt.  

What is zombie debt?

Zombie debt is debt that has fallen off your credit report, that you no longer owed, but a debt collector is trying to revive. Zombie debt might be revived with new communication from a collection agency or a new debt collection on your credit report. 

There are a few types of debt that can be classed as zombie debt and these include:

  • Discharged debts. These are debts that have been discharged in bankruptcy and should not be collected on. 
  • Time-barred debts. Aside from federal student loans, most types of debt have a statute of limitations. This varies depending on the state you live in but usually ranges from three to six years. After this time, a debt collector cannot sue you for an unpaid debt – unless you agree to make a payment, in which case the clock can reset. 
  • Debts that have fallen off your credit report. Old debt usually falls off your credit report after seven years. However, some zombie debt collectors illegally report old debt as new so that it reappears on your credit report. 
  • Debts that aren’t yours. In some cases, you might be asked to pay debt that’s not yours. This can happen if the debt belongs to someone with a similar name, the creditor has made a mistake, or you’re a victim of identity theft.  

What is zombie debt: image shows couple working through bills

(Image credit: Getty)

How zombie debt works

Creditors often remove old debt from their books and sell it on to debt collectors for less than it originally cost. Although debt collectors cannot take you to court over the debt, they can start contacting you and asking you to pay up. If you agree to do so, the collector will likely earn a decent profit, even if you only pay off a portion of the debt.

Zombie debt collectors, or debt scavengers as they are also called, often use illegal tactics to try and convince you to hand over the money. For instance, they might promise to leave you alone if you make a small payment, or they might tell you that you owe more than you actually do. Some will even step it up a level and threaten to sue you, threaten you with violence or tell you you’re going to jail.

How to protect yourself from zombie debt collectors

Being approached by a zombie debt collector can be confusing and intimidating, but it’s important not to let the collector scare you into paying up. Instead, take a look at the steps below:  

1. Don’t share your personal information 

If a debt collector contacts you, you don’t have to talk to them. But if you decide to, don’t share any information about your income, bank accounts, Social Security number or property you own as this information might be used against you. 

2. Request validation of the debt 

If you receive a collection notice in the mail, you have the right to ask that the collector validates the debt. You can do this by responding with a debt validation letter asking for more information. This will help you determine whether the debt is time-barred and whether it is actually yours.  

3. Research the collection agency

If you know the name of the debt collection agency, investigate the company online. This should help you work out whether people have complained about its debt collection practices before and/or whether it’s the law firm it’s claiming to be. 

what is zombie debt: image shows man working at home.

(Image credit: Getty)

4. Tell them to stop 

You also have the right to tell the debt collector to stop contacting you. You’ll need to make this request in writing and send the letter certified mail with a return receipt so you know if the letter has been received. If you request that the collector ceases communication, it must do so in most situations.  

5. Don’t revive the debt 

Whatever you do, don’t admit you owe the debt and don’t agree to pay it. If you never owed the debt in the first place, making a payment can be interpreted as an admission that the debt is yours. 

Even if you agree to make a small payment, the statute of limitations clock could reset and a debt collector could try to sue you for the full debt amount. Be sure to check state laws on this as they vary.

6. Know your rights 

Federal law gives you certain rights when dealing with debt collectors. For example, you cannot legally be sued for a debt that’s past the statute of limitations. It is also worth familiarizing yourself with The Fair Debt Collection Practices Act (FDCPA) as this governs what debt collectors can and cannot do. If a debt collector threatens, harasses or intimidates you into paying up, this is illegal and you must report it to the Federal Trade Commission (FTC) and your state Attorney General’s office. 

7. Check your credit report 

It is also prudent to regularly check all three of your credit reports to see whether a debt collector has illegally reported an old debt to a credit bureau. If that’s the case, you can file a dispute with the credit reporting agency. Regularly checking your report will also help you establish whether you might be a victim of identity theft. 

8. Don’t ignore a lawsuit 

If a debt collector files a lawsuit against you, it is important to respond to it either personally or through your lawyer by the date stated in the court papers. If you don’t, you could forfeit your legal rights. 

9. Speak to an attorney 

Seeking legal advice will ensure you fully understand your options so that you can bury zombie debt for good.  

Rachel is a finance expert and regular contributor to Top Ten Reviews. She has crafted expert financial advice for the likes of The Spectator, Money Supermarket, Money to the Masses, and The Observer. She has written extensively about money-saving tips, and about how you can make the most of your finances in relation to loans, house buying, and other subjects.