Has a debt collector contacted you about paying a debt that you don’t think you owe? Maybe you’re sure it’s not yours because you know you’ve repaid every penny you’ve ever borrowed. Maybe you used to be deep in debt, but declared bankruptcy and got a fresh start. Perhaps you once owed a credit card company $10,000 that you had no hope of repaying, and it agreed to a debt settlement that you’ve already paid. Or perhaps you had your identity stolen and someone racked up debt under your name – but you got the creditor to agree you didn’t owe the money and convinced the credit bureaus to remove the blemish from your credit history.
All of these scenarios and more, combined with human error and creditors’ widespread practice of selling delinquent debt, can bring a debt that should be dead back to life. If so-called zombie debt is lurching after you, here’s what you need to know.
What Are Zombie Debt Collectors?
Zombie debt collectors try to collect old debts that consumers aren’t responsible for. One common reason why you might not be responsible for a debt is that the statute of limitations has expired. Some zombie debt collectors also try to collect debts that a consumer discharged or repaid in bankruptcy, that were dismissed because they were racked up by a thief, that belong to someone else with a similar name or that were previously settled.
The statute of limitations is one of your most powerful allies in fighting zombie debt. You can’t be sued for a delinquent debt after this period expires.Each state determines how long the statute of limitations is. For credit card debts, the statute of limitations is as long as seven years in some states and as short as three years in others. Some types of debt have a 10-year statute of limitations.
Which state’s laws apply to your debt should have been named in the terms and conditions of your credit card or loan documents, but a judge can also decide which state’s laws apply. In Delaware, where several major credit card companies are headquartered, the statute of limitations is three years, while in South Dakota, where Citi and Wells Fargo are based, it is six years. In some states, the statute of limitations begins when you last made a payment; in others, it begins several months after your last payment. Also see What debts don't have a statute of limitations applied to them?
If zombie debts are so old that they’re beyond the statute of limitations, why is anyone still bothering to collect them? There’s a whole debt-buying industry out there where creditors package up delinquent debts with similar characteristics and sell them to debt collectors for pennies on the dollar. The oldest and most difficult-to-collect debts are the least expensive to purchase: Old credit card debt can cost just 2.2 cents on the dollar.
Debt collectors who buy this old debt get to keep whatever they collect. What they can’t collect, they might turn around and sell to another debt collector. The process can go on indefinitely, and the consumer records that are exchanged are often incomplete. It’s easy for a collector to get the mistaken idea that you owe a debt for which you’re not responsible.
Zombie Debt Collectors’ Tactics
Even though the federal Fair Debt Collection Practices Act (FDCPA) prohibits collectors from misrepresenting the amount you owe, it’s likely they haven’t bothered to check how accurate the records they’ve purchased are. Even if they wanted to, they likely don’t have enough information to get to the source for the full details of your original debt.
Because of the way old debts are packaged and resold, zombie debt collectors also do not necessarily know whether the statute of limitations on a particular debt has expired. What they do know is that even if it has, they can easily get consumers to make a mistake that will restart the clock.
Caution: When a consumer acknowledges a defunct debt or makes even a small payment on it, this action restarts the clock and the consumer becomes responsible for a debt he or she otherwise would not have had to pay.
How to Protect Yourself from Zombie Debt Collectors
The passage of time does not relieve consumers of the moral obligation to repay their debts, but it does relieve the legal obligation. If a collection agency has contacted you about a debt you don’t think you should have to repay, your first step should be to request written verification of the debt or to dispute that you owe the debt. The Consumer Financial Protection Bureau’s website contains sample letters to debt collectors that you can use for this purpose.
To preserve your rights, here are some things you should not do before verifying that the debt is legitimate:
– Discuss the debt on the phone. Written communication lets you choose your words carefully and creates a record of information exchanged.
– Provide or confirm personal information. Someone posing as a debt collector might be trying to steal your identity.
– Confirm that you owe the debt.
– Make a payment.
Once you get more information, in writing, about your debt (called a letter of validation), you can decide how to proceed.
If you know the debt is legitimate and you have the means to repay it, you could choose to repay the debt in full, set up a payment plan with the collector or negotiate a settlement. If the collector wants $10,000 from you, and you know they’ve paid about 2 cents for each dollar of that debt, or $200, they might be happy to settle for $2,000. Don’t be surprised if they don’t agree to a settlement right away, though. You’ll have to wear them down. The more they collect, the more they make.
Never pay a settlement or make payments on a payment plan until you get the agreement in writing, and never give a debt collector access to your checking account. You should also know that just because the statute of limitations has expired on a debt doesn’t mean it can’t still hurt your credit score.
Bad debts stay on your credit report – generally for seven years (in New York State it can be five years for debtors who meet certain criteria). Reviving a zombie debt also means it can reappear on your credit report.
If the collector insists that you owe the debt and you know you don’t, send another letter by certified mail with return receipt stating that you don’t owe the money.
Ultimately, you may have to resolve the matter in court. If the collector sues you, you should win if you can show that the statute of limitations has expired or if the zombie debt collector can’t prove that you’re legally obligated to pay the debt – and they often can’t. You can also sue a debt collector who violates your rights. For more information, see What legal action can I take against a debt collector?
The Bottom Line
Zombie debt collectors don’t have your best interests at heart. Their goal is to collect money from any alleged debtor they can talk into paying. If you find yourself being pursued for zombie debt, keep your guard up and take every precaution to protect yourself from resetting the statute of limitations.
You don’t have to pay anything you don’t owe. Rewarding unscrupulous debt collectors by paying them will only make the industry worse.