Being debt-free is a big deal. And it can make you feel like a huge weight has been lifted off your shoulders.
So when an unexpected debt pops out of nowhere, it can leave you confused and even scared.
This kind of debt is known as “zombie debt,” a term that sounds scary because it makes you think of old, forgotten financial fears that won’t go away.
There are a few good ways to handle this situation, and sometimes you might not even have to pay any more money than you already have.
Below, we’ll explain what zombie debt is and how to deal with it if it comes back to haunt you.
What is zombie debt?
Zombie debt is old debt that has usually passed its statute of limitations. This means that debt can’t be collected through the courts anymore because the original creditor may have forgiven those debts or even let them go through bankruptcy.
However, zombie debts can resurface even though the law cannot enforce them. This happens when debt collection agencies buy them for a lot less money.
To get you to pay, they often use pushy methods like making repeated calls, delivering threats, or giving people false information.
What are the types of zombie debt?
There are three kinds of zombie debt. These are:
#1. Time-barred debt
Time-barred debts are ones that can’t be legally collected because the time limit (statute of limitations) on them has elapsed.
Once the statute of limitations expires, creditors or debt collectors cannot sue individuals to collect these debts through the court system. However, a creditor or debt collector might still attempt to collect payment through other means, like contacting the debtor for voluntary payment.
Example:
Let’s say someone had a credit card debt that they stopped paying years ago. The statute of limitations for collecting this debt has expired, making it unenforceable in court.
However, a debt collection agency may buy this debt and start aggressively pursuing payment, even though it’s legally uncollectible.
#2. Write-off debt
Write-off debts are ones that a creditor may have written off because they’ve been deemed uncollectible. However, these debts can resurface when debt collection agencies purchase them with the hope of collecting payments from the debtor.
Example:
A person might have taken out a small business loan that became unmanageable due to the business closing or other circumstances. The lending institution may write off the remaining loan amount as a loss.
However, a debt collector could acquire this written-off debt and attempt to collect it from the individual.
#3. Forgotten or paid debt
Certain circumstances may arise in which a repaid or settled debt reappears as a zombie debt due to inadequate record-keeping or unsuitable documentation. Debt collectors may attempt to collect on debts that were already resolved or are no longer valid.
Example:
After completing a student loan rehabilitation program and making the required payments, an individual’s loan was considered rehabilitated and no longer in default.
However, years later, a debt collector tries to collect on the same debt, unaware of the rehabilitation or acknowledging the debt’s current status.
Discharged debts
If you’ve filed for Chapter 7 bankruptcy, some of your debts may be discharged.
This means that you don’t have to pay them back, like a zombie mortgage. You should have a written agreement that says you’re no longer legally responsible for the debt once it has been paid off.
Example:
You filed for Chapter 7 bankruptcy due to overwhelming medical bills. As a result, the bankruptcy court discharged all of your unsecured debts, including credit card balances, medical bills, and personal loans.
These debts were legally forgiven, relieving you of the obligation to repay them. However, a debt collector may still try to collect the balance on these debts.
Can I ignore zombie debt?
It’s not a good idea to ignore zombie debt because it could lead to other problems.
These debts can’t be collected legally because they are too old or the statute of limitations has passed. But avoiding them could lead to constant calls from debt collectors, which can be upsetting and stressful.
How do I deal with someone trying to make me pay back zombie debt?
When people try to collect on “zombie” debt, you need to be careful and well-informed to protect your rights and your finances.
Instead of ignoring zombie debt, consider taking these proactive steps when dealing with debt collectors:
#1. Know your rights: Research and understand the statute of limitations for debt collection in your state. You should also have an understanding of laws like the Fair Debt Collection Practices Act (FDCPA), which outlines rules debt collectors must follow.
#2. Verify and validate: Ask for proof of the debt in writing. If asked, debt collectors must show proof that the debt is real.
#3. Check your records: Check your records to make sure the debt is correct, especially if you think it has been paid, settled, or discharged.
#4. Communicate wisely: Communication with debt collectors in writing is best, and avoid saying you owe money or making partial payments, as this could bring the debt back up. Also, don’t give out any personal or financial details until you’re sure the debt is real.
#5. Seek legal advice: Talk to a consumer rights lawyer who specializes in debt collection methods if you feel threatened, harassed, or unsure of your rights.
How do you get rid of zombie debt?
Paying your debts quickly is one of the best ways to protect yourself from zombie debt.
Try to settle your debts or negotiate payments before the debts are sold to debt collectors. This makes it less likely they’ll resurface as zombies in the future.
Other things you can do to get rid of zombie debt are:
- regularly review your credit report to check for unauthorized or inaccurately reported debts.
- dispute inaccuracies in reported debts with credit bureau.
- maintain records of paid debts and communicate in writing to have a documented trail.
Final thoughts
Zombie debt can be scary and hard to deal with, like a financial horror story. It’s important to understand how to deal with debt collectors, and what consumer protection rules are in place to deal with this financial threat.
By knowing your rights, keeping records and regularly reviewing your credit reports, you can prevent any debt from coming back from the dead to haunt your finances.
Updated from Jan 3, 2024
