The Quick Guide To Zombie Debt

Zombie debt is a term referring to when debt collectors try to collect on old loans that borrowers think are resolved.

Here are examples of situations from which zombie debt may arise:

• You believe you settled with the lender or debt collector.
• You were the victim of identity theft, and the scammer used your identity to secure loans.
• The debt isn’t on your credit report.
• The debt reached the statute of limitations.

The debt can originate from credit card debt, student loans or even a bankruptcy that’s been discharged.

Let’s dive deeper into zombie debt so you can learn how to protect yourself if collection agencies come calling.

What Is Zombie Debt And How Does It Work?

If you have a debt collection agency contact you about an unpaid debt, you may be in a zombie debt situation.

Here’s how this scenario might play out: First, the original creditor is unable to collect on a debt. Then, a debt buyer pays pennies on the dollar owed to pursue this debt. Next, the debt buyer sells the old debt to yet another collector who pursues the debtor.

These debts aren’t always legitimate. Zombie debt collectors are sometimes called debt “scavengers” because they’re prone to demand payment for credit cards you’ve never had or utility bills from homes you’ve never lived in. The zombie debt collectors’ pursuit of you could be the result of you experiencing identity theft.

Debt buyers may also try to collect on your settled debts. Proving that you don’t owe money on an account can be difficult, especially for debts that are years old. Not many people keep canceled checks or other documentation for that long.

The law may be on your side, though. Collectors may need to prove that you actually owe money before coming after you. Unfortunately, it’s not uncommon for zombie debt collectors to use legally and ethically questionable methods.

The Statute Of Limitations On Debt

According to the Consumer Financial Protection Bureau (CFPB), creditors and debt collectors have a limited time frame to recover debts. This statute of limitations varies by type of debt, state law and whether the state laws apply according to your credit agreement. In many cases, the statute of limitations is 3 – 6 years.

Once the statute of limitations passes, the debt becomes a time-barred debt. Typically, the statute of limitations begins when you fail to make a required payment.

Making even a small payment on a zombie debt can reset its statute of limitations. Often, a debtor may also have to raise the statute of limitations as a defense.

How Zombie Debt Collectors Operate

Next are some tactics that debt collectors often use.

Applying pressure for a payment: Zombie debt collectors often pressure people into providing information about their debts or making a small payment. Agreeing to any of their demands can create problems, according to experts.

For example, a zombie debt collector may agree to stop contacting you if you pay off a small portion of your alleged debt. Agreeing to this can reset the statute of limitations, however.

Representing themselves as law firms: Being contacted by a law firm might seem more intimidating than talking with a debt collector. The collection agency might try to trick you into paying to avoid legal trouble.

Reporting your old debt as new debt: Credit bureaus can only report negative items on your credit report for 7 years. But zombie debt collectors might report the old debt as new, which is illegal and commonly known as “re-aging.”

Laws Often Bind Debt Collectors

Debt collectors must follow the Fair Debt Collection Practices Act (FDCPA) when trying to collect from a potential debtor. If they threaten to sue or file a lawsuit against you, they may be violating federal law. 

How To Protect Yourself From Zombie Debt

Here are a few steps you can take when a debt collector contacts you:

• Don’t make any payments or offer zombie debt collectors any information.
• Use CFPB sample letters to respond to zombie debt collectors. The bureau includes instructions with the letters, which should help you assess the situation and plan your next move. Be sure to send it as a certified letter.
• Request a debt validation letter to prove the debt is legitimate. Collectors are often required to stop collection efforts if you send this request within 30 days of receiving their debt validation notice.
• Consult an attorney if a debt collector files a suit against you.
• Review your credit report and try to find any evidence of the debt. Implement strategies to prevent zombie debt from impacting your credit score.
• If a collections agency keeps harassing you, file a complaint with your state attorney general or the Federal Trade Commission.

Zombie Debt FAQs

Here are questions people often ask about zombie debt.

Is zombie debt legal?

In many cases, it’s legal for debt collectors to pursue zombie debt. However, collectors need to obey laws concerning their conduct. For example, debt collectors may not be able to threaten you with legal action. Even though attempting to collect zombie debt can be legal, the debt itself may not be legitimate.

Can I ignore zombie debt?

Ignoring zombie debt may lead to increased harassment by collectors. Instead, use sample letters from the CFPB to gather information about the situation and assess your options to protect yourself.

The Bottom Line: It’s Possible To Fight Off Zombie Debt Collectors

If debt collectors contact you about debt you don’t remember or debt you believe you settled, avoid giving the collector more information. Don’t pay even a small amount, even if they promise to stop contacting you. Instead, gather information or consider hiring an attorney to protect you and your money.

Need help tracking your debts? Download the Rocket Money℠app today to ensure you know how much money you owe and to whom.