Have you ever received a letter or phone call asking you to pay a debt that you're not sure you owe? If so, you may be the target of zombie debt collectors. What zombie debt is? How does it rise from the dead? What you can do if zombie debt starts its relentless lurch toward you? Find how to protect yourself from these zombies and finally lay them to rest.
What Is Zombie Debt?
It has become increasingly common for companies to sell their old, uncollected debts for pennies on the dollar to third-party debt collection agencies. Credit card companies, telecommunications companies, gyms and healthcare facilities want to get these bad debts off their books, so after a period of several months of nonpayment, they will turn your bills over to a debt collection agency. Sometimes the debt is sold to the collector, which gets to keep every penny it collects, and sometimes the collected debt is returned to the original creditor with the collection agency retaining a fee or a percentage of the collected debt as compensation.
Far beyond this murky point lies the realm of zombie debt, which is so old that the original creditor has given up on it completely. Zombie debt is years old - often past the statute of limitations for you to be held legally responsible it - and it is entirely owned by a debt collection agency.
What Zombie Debt Is Not
Zombie debt is not a credit card balance that you may have racked up years ago but are still making minimum monthly payments on. In this case, you will not be considered to have defaulted on the debt. After all, the interest you're paying is how credit card companies make money. It is only when they suspect that they will not be receiving any more money from you at all you that the zombie awakes.
Zombie debt is not a new concept, but it has been receiving more attention as a result of changes that occurred in the 1990s. In the 1990s, credit card companies started actively trying to earn more interest by offering cards to customers who didn't pay off their balances in full at the end of the month. This resulted in more people going into greater debt and, as a result, ceased to pay their debts altogether. (To learn about how to get out from a persistent debt, read Negotiating A Debt Settlement.)
Why Companies Buy Zombie Debt
Zombie debt collection agencies have nothing to lose and a lot to gain. They pay very little (pennies on the dollar) for the debts in the first place, so they stand to make a significant profit if they are able to collect even a partial payment from you. Unlike name-brand companies, they aren't concerned about protecting their image. If you had a store credit card that you didn't pay and then a representative of that store commenced debt collection activities against you, you might feel hostile toward the company and quit shopping there. If you are dealing with a third-party debt collector, however, you are less likely to discontinue your patronage of the store (or so the theory goes). (For more on debt collection, read Outfox The Debt Collector's Hounds.)
If zombie debt collectors are unable to collect the debt from you, they can resell it to another collection agency, making their only loss the time they spend paying employees to try to extract money from you. Zombie debt collectors often seek to maximize the value of their debt collection time by doing research on you beforehand, and targeting people who live in more affluent zip codes or whose credit scores have improved, figuring that they are more likely to pay up because they may have the resources to do so. (Feeling like you don't have the resources to improve your financial situation? Read Debt Consolidation Made Easy to learn five steps to help you get out of debt faster.)
The statute of limitations on debts varies by state, and even if the statute of limitations on your debt has run out, zombie debt collectors have a great incentive to contact you. If they can get you to slip up, the statute of limitations will start ticking again and suddenly, the debts they want to collect can become enforceable by the courts. This is why it's important that you understand what zombie debt is, what unscrupulous debt collectors want from you and how to protect yourself from them.
Who Is Pursued by Zombie Debt Collectors?
Anyone who has an old debt that was never paid off can be pursued by zombie debt collectors. However, many innocent people have also complained that zombie debt collectors are coming after them for false debts. Zombie debt can be the result of identity theft, clerical errors or becoming confused with another debtor with a similar name. It can also occur when creditors are not properly informed of your having successfully filed for bankruptcy. In any case, the uncollected debts can be resold again, making the problem difficult to destroy. As soon as you convince one collector that the debt is false, another zombie might rise up to take its place, leaving you to deal with a different collector.
How Can You Tell If the Debt Is Valid?
If you've had financial troubles in the past, you may be wondering if you really do owe some money that you just forgot about. If you're concerned about this, do not engage in conversation with the debt collector on the phone. Simply ask for the company's mailing address and hang up. If the collection agency's first contact with you is a letter, you won't have to worry about this. Send a letter via certified mail with return receipt notifying the debt collector in writing within 30 days that all or part of the debt is disputed. Visit the Privacy Rights Clearinghouse website to learn how to write an effective letter to a debt collector. The collector must then obtain verification of the debt or a copy of a judgment against you and mail it to you. It also must provide you with the name and address of the original creditor, if different from the current debt collector.
Once you have disputed the debt in writing, debt collection activity must cease until you have received a copy of the debt verification or judgment and the name and address of the original creditor. This will give you time and evidence to figure out if the debt is zombie debt or if it is still enforceable in court, and if the debt is really yours at all. Under the Fair Debt Collection Practices Act (FDCPA), the collection agency is required to do these things.
Another tactic is to research the company that has contacted you on the internet. You may find complaints from other consumers that indicate that the debt you supposedly owe may be fraudulent.
In some cases, it's easy to tell that the debt may not be yours and even if it is, you don't have to pay it. For example, if the debt collectors are coming after you under your maiden name and you changed your name more than seven years ago, even if the debt was originally yours, it is no longer enforceable in court because the statute of limitations has passed (in most states). Although we don't advocate shirking responsibility for your legitimate debts, with debt this old, any money you pay will not even go to the company you originally owed it to - it will all go to the debt collector. (Not sure whether the debt is being reported on your credit report? Read Check Your Credit Report.)
How Do You Protect Yourself From Zombie Debt?
Consumers' main problems with zombie debt stem from engaging in communication with the debt collection agency and from not knowing their rights. If you know how to handle the situation properly, you won't become a victim.
Even when the statute of limitations has passed, there is nothing preventing zombie debt collectors from trying to collect the debt as long as they do not threaten to sue or to report the debt to credit agencies (both of which would be illegal). If a collector acts like paying part of the debt will cause it to leave you alone, don't fall for it. If you pay anything at all on the debt, the statute of limitations can reset, making you liable for the entire debt and making the debt reportable to credit agencies. This is why some experts recommend not communicating with debt collection agencies at all if you know the statute of limitations has passed. Also, don't pay money you know you don't owe just to stop the harassment because this can be considered an admission that the debt is yours.
Watch your credit report to make sure zombie debt collectors don't illegally report the debt to a credit agency. If they do, you will have to take action to clear your name or you will risk major problems with applying for credit, such as a car loan, mortgage or even an apartment rental. If this happens, make sure to file a dispute with the credit reporting agency right away. (For more information on this, be sure to check out The Importance Of Your Credit Rating.)
If you must communicate with the debt collection agency, do it in writing by certified mail with return receipt and be sure not to say anything that could be construed as you claiming responsibility for the debt. Make it clear to the collector that you know your rights; the company may be more likely to leave you alone if it is clear that you are not an easy target. Never give a debt collector your bank account information.
To avoid telephone contact with debt collectors, get caller ID if you don't have it already and avoid answering calls from unfamiliar numbers. Don't let your children answer the phone, either, or if they're older and responsible enough, train them to handle any debt collection calls by hanging up immediately. Familiarizing yourself with the names of some of the agencies may help.
Under the FDCPA, debt collection agencies' only real defense for bad behavior is being able to prove that they made an error, so make sure to get everything in writing and keep your own log of any phone calls or other contact that does not occur in writing. This documentation will be indispensable if you end up in court.
If you receive a court document indicating that a lawsuit has been filed against you, don't ignore it, even if you think the lawsuit is bogus. First, contact the court using third party contact data (found online or in the phone book, not from the notice) to validate the notice. If it is real, get a lawyer. At the very least, show up in court to dispute the debt yourself. If the documents are false, the debt collection agency has violated the FDCPA and you can take legal action. The more violations, the higher the debt collector's liability.
If you don't want to deal with the hassle of filing a lawsuit or you're not sure if the debt collector has broken the law, there is still something you can do: Take action against shady debt collection practices by filing a complaint with the Federal Trade Commission (FTC) and with your state attorney general. In your complaint, you'll want to cite the law or laws that the debt collection agency has violated or at least state that the agency is trying to collect a debt that is not yours and for which the statute of limitations has passed. If enough complaints are filed, we may see new legislation in the future that curbs zombie debt collection activity.
What Are Your Rights?
Knowing your rights under the Fair Debt Collection Practices Act and the Fair Credit Reporting Act will help prevent you from being taken advantage of. In addition to the measures discussed above:
- A consumer may not be sued after six years or have the debt reported on his or her credit report after seven years.
- Debt collectors may not falsely represent "the character, amount or legal status of any debt" or tell you that "any debt will result in the arrest or imprisonment of any person or the seizure, garnishment, attachment, or sale of any property or wages of any person unless such action is lawful and the debt collector or creditor intends to take such action." You cannot be arrested for owing money - there's no debtor's prisons in the U.S.
- Debt collectors also may not "communicate or threaten to communicate to any person credit information which is known or which should be known to be false, including the failure to communicate that a disputed debt is disputed."
- If you don't want the debt collection agency to contact you anymore, you can send it a cease and desist letter (again, by certified mail with return receipt). You can also instruct the company to not contact your employer, neighbors, friends or relatives; it must comply. Again, make sure that your letter clearly states that you dispute the debt.
Don't let zombie debt collectors drain your bank account with fraudulent debt collection practices. Know your rights and act accordingly to protect yourself to put zombies back in their graves.
Find out why good intentions can put consumers in an even bigger hole than before, in our related article Digging Out Of Personal Debt.