What Everyone Should Know About “Zombie Debt”
It’s been five years since that fateful day when you settled your outstanding balance for that gym membership. You thought that old debt was long dead and buried. You’ve started a new life; rebuilt your credit. You’ve learned your lesson about irresponsible credit use. Things are different now.
And then, one day, the phone rings.
It’s a debt collector . . . but it’s not just any debt collector. This type of debt collector specializes in digging up old debts – debts that you thought were long dead and buried. Debts that – despite your state’s statute of limitations, bankruptcy, or payment – have been reanimated and made to walk among us again.
They’re zombie debts – brought back from the dead by “debt buyers” looking to make some quick cash off of your financial woes.
What is Zombie Debt?
Traditionally, debt collection practices have always worked something like this: You owe money to a creditor – such as a credit card company, a utility company, or a cell phone provider – and if you don’t make your payments, the creditor will spend a couple of years trying to get you to pay them. Eventually, you either pay them the full amount; settle with them to pay back some percentage of what you owe; or – if things drag on long enough – they simply stop trying to collect.
In recent years, though, the debt collection business has changed: Now, even after a debt has been settled or the statute of limitations has expired — “debt buyers” will purchase a company’s old debts and try to collect. They buy these old debts for next to nothing – and they use a variety of disingenuous, intimidating, and sometimes downright illegal tactics to get you to pay. Even if they only get a tiny percent of the original amount, they make a substantial profit.
In other words, they breathe new life into old debts that you thought were long gone. Hence the name: “Zombie debt.”
The Zombie-Debt Survival Guide
So, what should you do if you get a collections call regarding an old, (un)dead debt? Here are a few essential rules:
- Don’t tell them anything. A typical tactic for a debt-buying business is to get you to either: A.) Admit that the debt is yours; or B.) Agree to pay them something, even if it’s just a small amount. The best way to handle a call like this is to ask them to communicate with you in writing. Don’t confirm or deny that the debt is yours, and whatever you do, don’t promise that you’ll pay them anything. Simply ask them to send you more information about it, and get off the phone quickly.
- Know your state’s statute of limitations. Every state has a statute of limitations that determines how long a creditor (or a debt buyer) can legally pursue an unpaid debt. A debt that has passed its statute of limitations is called a “time-barred” debt, and it is illegal for a debt buyer to try to collect on a debt that is time-barred. The statute of limitations on a debt can vary from state to state. Check with your state’s attorney general to find out more.
|Just When You Thought it Was Safe . . .Even if your debt is well past your state’s statute of limitations, use extreme caution when dealing with collections calls. If you pay even a small amount on an old, time-barred debt, you are basically hitting the “reset” button on the statute of limitations – debt buyers know this, which is why they often try to get people to agree to pay just a small amount.
Bottom line: Even if you’re fairly sure that the debt is legitimate, you shouldn’t pay a dime until the debt is verified –in writing.
- Demand documentation. Typically, debt buyers don’t have all of the information pertaining to your debt. They buy whatever information they can get their hands on, and it’s usually spotty at best. They may be going after you for a debt that you’ve already paid off or settled, or they may be going after you for debt that is a result of ID theft or fraud. They may even be going after you for debt that belongs to someone else with a similar name. In some cases, there may not be a real debt at all – you could be dealing with a scammer hoping to scare you into opening your wallet.
Insist that the company provides you with a document that contains proof of your debt, including the amount you owe; the details of the original debt; and proof that they are legally allowed to attempt to collect that debt.
- Seek professional help. If you’re being harassed by collectors demanding repayment for a very old debt, you may want to consider hiring an attorney that specializes in debt collection. A good attorney can help you figure out if the debt is legitimate or not, and he or she can also determine of the collector has violated any laws, such as the debt collection rules laid out by the Fair Debt Collection Practices Act.
- Consider settling (if the debt is legit). Many zombie debt cases are fraudulent and some might even be illegal – but in the event that your debt turns out to be legitimate (such as an unpaid, long-forgotten cell phone or electric bill), you may want to consider settling to avoid further problems. The companies that buy and reanimate old debt don’t expect to get much – and most of them will be willing to accept anywhere from 50 to 30% of your original debt.
That said, it’s important to note that settling a debt can seriously damage your credit score – and it can create tax issues, too. Although settling can help put an old zombie debt to rest, it’s far from being a “clean break.” I’d suggest settling as a last resort in cases where you’ve exhausted all of your other options.
Zombie Debt is Scary – but it Can be Stopped
The good news about zombie debt is, there are ways to stop it from taking over your life. Do your research, demand documentation, and get outside help, if necessary. If you do these things, you can make sure that your old debt stays dead.