Loading the player...

What is 'Zombie Debt '

Zombie debt is debt that has been long forgotten about and has probably been written off as uncollectible. But zombie debt can rise from the grave, if a debt collector attempts to collect on it all over again, even when the debt is too old to legally pursue.

BREAKING DOWN 'Zombie Debt '

Zombie debt generally refers to debt that is more than three years old, which has either been forgotten about, already been paid off or belonged to someone else. It can also be the result of identity theft, a computer error, or a fraudulent attempt to collect on a debt that does not exist.

The original creditor will most likely have given up on the debt and sold it on to a debt collection agency. These debt collectors can be quite unscrupulous, and often make harassing and threatening phone calls.

Statute of Limitations

The statute of limitations on how long a lender can attempt to collect on a debt is six years in most states, and even shorter in some. While the debt is still considered valid even after the statute of limitations has passed, you are not legally required to pay it. However, the companies that buy uncollectible debts are playing a numbers game. They only need a few people to repay their debts to be profitable. But there is no benefit in paying a debt that is beyond the statute of limitations, because paying anything will restart the statute of limitations, put the debt back on your credit report and enable the debt collector to take you to court.

What to Do If You’re Contacted About Zombie Debt

Debtors can protect themselves from harassment under the Fair Debt Collection Practices Act. This limits the behavior and actions of third-party debt collectors, and restricts the means and methods by which they can contact debtors, as well as the time of day and number of times contact can be made. The important thing is not to spend any time on the phone with the debt collector. Ask for their address and send a certified letter within 35 days of contact. Dispute that you owe the debt and ask them to prove that you owe it. If you continue to be contacted by the debt collection agency, write them another letter and inform them that they cannot contact you unless it is by writing or if they are going to sue you. If the debt is beyond the statute of limitations the collector will probably go away.

RELATED TERMS
  1. Fair Debt Collection Practices ...

    The Fair Debt Collection Practices Act is a federal law that ...
  2. Collection Agency

    A collection agency or debt collector is a company hired by lenders ...
  3. Debt Assignment

    Debt assignment is a transfer of debt, and all the associated ...
  4. Re-Aging Debt

    The forced resumption of legal obligations on old debt is called ...
  5. Net Debt

    Net debt is a metric that shows a company's overall debt situation ...
  6. Debt Snowball

    A strategy for paying off outstanding balances, the debt snowball ...
Related Articles
  1. Personal Finance

    Negotiating A Debt Settlement

    If you're being harassed by a debt-collection agency, you can take charge. Find out how.
  2. Financial Advisor

    The 4 Best Debt Reduction Services

    It can be tricky to find the best debt reduction services for your financial situation. These top 4 debt consolidation firms help make the process easier.
  3. Personal Finance

    Will Paying Off Old Debt Boost Your Credit Score?

    Learn why paying down your debts may not always be the fast-track to improving your credit score.
  4. Insights

    The National Debt Explained

    We know it's growing, but we don't know exactly how. An in-depth look why the U.S. Government's debt continues to balloon and what it all means for you.
  5. Insights

    How Debt Limits A Country's Options

    While debt is fundamentally necessary to the operation of a national government, it can also be limiting and dangerous.
  6. Investing

    Does 2016 Spell the End of a Global Debt Cycle?

    Examine the growth of global debt from 2010 to 2015. Emerging market debt has grown significantly, while advanced economy debt has grown marginally.
  7. Personal Finance

    Debt Settlement Arrangements And Your Credit Score

    The debt settlement process is not for everyone and can further damage your credit score. However, it can prevent the debt from being sold to a collection agency, who may only accept payment ...
  8. Personal Finance

    Debt Settlement: Cheapest Way to Get Out of Debt?

    Debt settlement is not for everyone, but for those seriously in debt it may prove an effective means of solving the problem.
RELATED FAQS
  1. Debt and collection agency

    Find out what happens when your debt account is sold from one collection agency to another and the impact on your balance ... Read Answer >>
  2. Why is debt issued in both temporary and permanent forms?

    Debt is separated into two categories: 1) Temporary or short-term 2) Permanent or long-term. Temporary or short-term debt ... Read Answer >>
  3. What's the difference between debt consolidation and debt settlement?

    Learn the differences between negotiating a debt settlement with your existing creditors and applying for a new consolidation ... Read Answer >>
Trading Center