Should You Settle Zombie Debt?

You’ve undoubtedly seen at least one movie or watched a TV program about zombies. Whether they’re called zombies or the walking dead they’re all the same. They’re people who had died but then, through some miraculous happenstance, were able to force their way out of their graves to attack the living.

So, what is zombie debt? According to the website Investopedia, zombie debt is an old bad debt that you had forgotten you owed in the first place. It’s likely that whatever company you owed the money to initially has given up on it. A debt collector may have been bought your debt at a very low price and is now attempting to recover the money you owe. In other words, the debt has risen from the grave and is back to haunt you.

How a debt becomes a zombie

Let’s suppose you owed $2000 on a credit card. The card issuer made a number of attempts to collect the money. However, you either didn’t have enough money to pay or settle the debt or maybe you just chose not to. After three or four months of harassing you, the credit card company gave up and “charged off” your debt, which took it off the company’s books. After it’s six years old, the lender will stop trying to collect on your debt altogether because it’s then passed the statute of limitations. This means you’re no longer legally required to pay it.

Comes the zombie debt collector

In other cases, the lender will bundle up all its zombie debts, and sell them to a debt collector for pennies on the dollar. In fact, most collectors pay about 3% of the amount owed or $30 for a $1000 debt. Because they pay so little for these debts, they can make money if they collect just a fraction of what’s owed.

When you’re contacted

Let’s say that $2000 credit card debt was a number of years ago, and you’d totally forgotten about it. But a debt collector calls, out of the blue, and insists you pay it off. Don’t panic. It’s likely that your state’s statute of limitations has expired, and you’re no longer required to pay it.

First, ask the debt collector to provide written proof of its validity, as well as the name and address of the original creditor if the debt was resold. It should also include the last day there was activity on the debt, which is usually the date of your last payment. You have a legal right to this information per the Fair Debt Collection Practices Act (FDCPA).

Next, check with your state to determine its statute of limitations on debts. It’s five years in most states. If this is the case where you live, and the last activity on your debt was more than five years ago, you’re not legally required to pay it.

If the collector continues to harass you

Some unscrupulous collectors will continue to harass you. They may try to motivate you into paying the debt by using guilt, installing fear, or by taking advantage of your lack of knowledge. Their hope is that you’ll eventually give in, and settle the debt just to get rid of them. Never agree that the debt is yours. Also, never agree to make even a small payment to settle the debt. This would restart the clock on the statute of limitations so your debt will be valid once again, and you will owe it. The debt may even show up again in your credit reports.

To stop the harassment

If the collection agency continues to harass you, write it a letter that it cannot contact you again unless it’s by letter, or if it’s going to sue you. Assuming the debt is beyond your state’s statute of limitations, the collection agency probably won’t pursue any legal action against you.

Another important FDCPA Benefit

In addition, to protecting you from predatory debt collectors, the FDCPA offers at least two other important benefits. For one thing, you can’t be sued over any debt that’s been inactive for at least six years. And after seven years, the debt must be taken off your credit reports.

In Conclusion

if you receive a call from a debt collector regarding a very old debt, don’t panic. The odds are you’re no longer legally responsible for it. Check your state’s statute of limitations. If you find the debt has passed the date of its last activity, relax. You’re no longer legally responsible for paying it or settling it.