Dealing with zombie debt can be a financial nightmare. These are old debts that you thought were long gone, but they’ve come back to haunt you.
What Is Zombie Debt?
Zombie debt refers to old, often past the statute of limitations, or already paid-off debts that are still pursued by collection agencies. It can be frustrating and challenging to handle. Debt.com’s founder, Howard Dvorkin, CPA, explains what Zombie Debt is and how you can kill the debt for good:
Click here for full video transcript
Can you tell me what exactly zombie debt zombie is?
Zombie debt is a debt that you thought was dead and buried and in the ground that reaches up and comes back to life. And it’s exciting isn’t it? What a visual it is. Because you thought it was like, oh, that did, that’s long gone.
The problem is that it’s a trap because many people don’t realize that if they start paying on a zombie debt, they reenact or reactivate the statute of limitations all over again, and then they actually owe it.
The people trying to collect from you are trying to trick you into reigniting the statute of limitations by saying, “Well, why don’t you pay $10, and then we’ll see where it goes?” If you pay any payment, one cent, all of a sudden, you actually owe that debt—even though before you made that small payment, you didn’t.
So you have to be very, very careful. Your state may say if you haven’t made payments in three or four years—depending on their laws—you don’t know it. But it’s going to be reported on your credit report for the next seven years. If you’re going for a house or a car, you want to clean up your credit.
Maybe it makes sense to make a payment and pay that off, but make sure that before you pay it off, you get something in writing that this zombie debt is going to be removed from my credit report. It sounds like they’re doing you a favor, right? But they’re really not.
What should you do if you’ve been contacted about zombie debt, and how can people protect themselves? You need to make sure that the debt is actually yours. You also need to check the statute of limitations with what is the state law, if you actually owe it, if you don’t owe it. Why pay it, right? I mean that’s my attitude. I would just let it lie. Okay, lie dead. Because you know it a lot of medical bills and things like that get trapped into zombie debt because the medical company’s medical billers aren’t the best at following up and chasing people.
You have to be very careful. Now, the problem I see is that a lot of companies buy old expired debt, which is zombie debt, and they’ll make an effort to collect it. And that’s what you have.
Steps to help you “kill” zombie debt
- Verify the Debt: The first step is to ensure the debt is legitimate. Request written verification from the collection agency, including details of the debt, the original creditor, and the amount owed. Under the Fair Debt Collection Practices Act (FDCPA), this is your right.
- Check the Statute of Limitations: Every state has a statute of limitations for debt collection. Once this period expires, the debt becomes uncollectible in court. Research your state’s statute of limitations for the type of debt you’re dealing with.
- Dispute the Debt: If you believe the debt is invalid or inaccurate, dispute it to the collection agency in writing. They must investigate and provide evidence of the debt’s validity.
- Cease Communication: You can request that the collection agency cease contacting you regarding the debt. Send a cease and desist letter by certified mail with return receipt requested. They can only contact you one more time to acknowledge your request or inform you of legal actions.
- Negotiate a Settlement: If the debt is valid and within the statute of limitations, you may consider negotiating a settlement. Offer to pay a reduced amount in exchange for them marking the debt as “paid” or “settled” on your credit report. Always get any agreement in writing before making a payment.
- Review Your Credit Report: Monitor your credit report to ensure the debt is reported accurately. Dispute any discrepancies with the credit bureaus.
- Seek Legal Advice: If the collection agency is harassing you, violating your rights under the FDCPA, or you’re unsure how to proceed, consult with an attorney who specializes in debt collection issues.
- Educate Yourself: Familiarize yourself with your rights and the laws related to debt collection in your jurisdiction. Knowing your rights can empower you in dealing with collection agencies.
- Maintain Documentation: Keep detailed records of all communication with the collection agency, including letters, emails, and phone calls. This documentation can be valuable if you need to prove your case in the future.
- Consider Bankruptcy as a Last Resort: If you have substantial debts that you cannot manage, consult with a bankruptcy attorney to explore whether bankruptcy might be a viable option to eliminate or restructure your debts.
Remember that dealing with zombie debt can be complex, so it’s crucial to proceed carefully and, if necessary, seek legal advice to protect your rights and financial well-being.
Dealing with Zombie Debt Reassignment
—Kelly B. in Pennsylvania
Amy Myers from Ovation Credit Services responds…
Hi Kelly,
It sounds like there are a few different issues at play here. The first is whether debt can reappear on your credit report after it has been deleted, and the second, which is entirely separate, is how you should handle inaccurate information on your report.
Unfortunately, this situation is all too common. A study from the Federal Trade Commission found that about 20% of consumers have an error on at least one of their three credit reports. These errors can harm your credit score and cost you money, but it’s a good sign that you are committed to improving your credit.
How deleted items can reappear on your credit report
Unfortunately, deleted items can reappear on your credit report if the credit bureau has reason to believe they’re legitimate debts. This practice is known as reinsertion and is laid out in the Fair Credit Reporting Act.
First, let’s quickly talk about how the dispute process works. When you dispute an item in your credit report as being inaccurate, the credit bureau will investigate your claim. If the collections fail to verify the debt, the item is removed from your credit report.
But just because it was removed doesn’t mean it can’t reappear. If the debt collection agency can verify the debt, it may be reinserted on your credit report. In this case, the reporting agency is required to notify you within five business days.
The other question at play here is why debt would have reappeared on your credit report by another debt collector. Debt collectors can sell debts to other agencies like lenders can sell debts to collectors. For that reason, it’s entirely possible that your original collector sold the debt to another company, who then reported it to the credit bureaus.
Legal Implications
Debt reassignment can raise legal questions about the debt’s validity and the debtor’s rights. Understanding the legal aspects is crucial in dealing with zombie debt reassignment. When a debt is sold to another debt collector, your rights as the consumer don’t change, but neither does your responsibility for the debt.
Impact on Credit Score
Zombie debt reassignment can have a negative impact on your credit score. Even though the debt may be old, it can still appear on your credit report and affect your financial standing. However, the Consumer Financial Protection Bureau just announced it finalized a rule to remove medical bills from credit reports. So, medical debt can no longer hurt your credit.
How to remove incorrect information from your credit report
It’s possible that a debt could be sold to another collector and reappear on your credit report after being deleted. However, given that the date and amount on the report are incorrect, you have the right to dispute it. Creditors have a duty to report accurate information to credit bureaus. If they fail to do so, you may have it removed.
To dispute an inaccurate item, start by pulling a copy of your credit report from each of the three credit bureaus, Equifax, Experian, and TransUnion, or set up a free credit consultation. Federal law requires that each person be able to access their credit report annually from each credit bureau. During the pandemic, each consumer is allowed free weekly reports.
The next step is to dispute the debt, which you can do through the credit bureau’s websites or by contacting them directly via mail or phone. You’ll provide your personal information and explain which information is incorrect. The bureaus have 30 days to investigate your claim, including reaching out to the creditor to verify the debt.
If the creditor can’t verify the date and amount of the debt, then it will be removed from your credit report. Based on the information you’ve provided and the fact that the debt was previously deleted, it sounds like that might be the outcome.
If the credit bureaus don’t remove the claim, you’ll have to work directly with the debt collector. Ask for a debt validation letter laying out the debt, the amount due, and the date. They’re legally required to provide this letter. You can work directly with them to either have the debt corrected on your credit report or removed altogether.
