Beware of Zombie Debt! It could be an old debt you don’t even owe. Learn how to protect yourself from these lurking financial threats!
Zombie debt is a financial nightmare that can come back to haunt you when you least expect it.
This type of old, often expired debt is purchased by collection agencies for pennies on the dollar, giving them a strong incentive to collect on it, even if the debt was already paid off or never belonged to you in the first place.
Whether it’s a forgotten second mortgage from the 2008 housing crisis or a time-barred credit card bill, zombie debt can wreak havoc on your finances if you’re not careful.
In this post, we’ll explore what zombie debt is, why it resurfaces, and how you can protect yourself from falling victim to aggressive collection tactics.
FAQs
Q1: What is zombie debt?
A1: Zombie debt refers to old, often expired debts that have been sold to collection agencies. These agencies attempt to collect on them even though they may no longer be legally enforceable or may have already been paid off.
Q2: Can I be sued for zombie debt?
A2: While zombie debt may be beyond the statute of limitations, meaning you can’t be sued for it in most cases, collectors might still try to convince you to pay voluntarily. However, making any payment could reset the statute of limitations in some states.
Q3: How do I know if a debt is considered zombie debt?
A3: You should request a debt validation letter from the collector, which will provide details about the original creditor and when the debt was incurred. This will help you determine whether the debt is legitimate or expired.
Q4: What should I do if I’m contacted about zombie debt?
A4: If you’re contacted about zombie debt, don’t panic or make any immediate payments. First, ask for a validation letter and verify whether the debt is yours and within the statute of limitations before taking any action.
Q5: Can paying part of a zombie debt reactivate it?
A5: Yes, in some states, making even a small payment on zombie debt can reset the statute of limitations, allowing collectors to legally pursue the full amount again.
Understanding Zombie Debt
Zombie debt is old and often expired debt that could be revived after being purchased by a collection agency for pennies on the dollar — or less.
These “debt scavengers” have plenty of incentive to cast a wide net and take aggressive steps to collect even a small portion of the original debt.
Contact From Debt Collectors
If you are contacted by a debt collector, it could be for a debt you already repaid or don’t owe. For debts written off by creditors long ago, some records might be lost or unreliable.
If you don’t remember crossing paths with the creditor, it’s possible that the debt in question belongs to someone else with a similar name or is the result of identity theft.
Zombie Debt And Second Mortgages
One example is a recent wave of zombie second mortgages threatening families with the loss of their homes.
After the 2008 housing crash, many homeowners had their mortgages modified and presumed (or were told) that their second loans were forgiven.
Now that home prices have risen around the nation, more investors who bought defaulted second mortgages are moving to collect those debts, even if it means foreclosing on the homes.1
Unfortunately, this is just one of the ways that zombie debt could come back to haunt you, and depending on the circumstances, you may or may not be responsible for paying it back.
More Types Of Zombie Debt
Time-barred debt. You may be contacted about a debt that is beyond the statute of limitations — the length of time during which you can legally be sued by a creditor or debt collector over an unpaid debt. These limits differ based on the type of debt and can vary widely by state, though they generally range from three to 10 years.
When a debt is “time-barred,” a debt collector may still try to convince you to repay it voluntarily
Discharged debt. This refers to debt that has been legitimately wiped out through a bankruptcy case.
Settled debt. A lower payoff on non-secured debt (such as medical or credit-card debt) might have been negotiated with the creditor in exchange for forgiveness of the remaining balance.
Beware Of Scare Tactics
Debt collectors are not allowed to use abusive language, constant harassment, or deception to intimidate you into repaying a debt that is beyond the statute of limitations or is not actually yours — but it’s been known to happen.
They might threaten to sue, even if it’s illegal to do so, then offer to leave you alone if you make a partial payment.
Don’t Get Tricked
In some states, making one small payment on an expired debt can reset the statute of limitations and bring it back to life.
The collector could then legally pursue the entire amount
Repaying part of a debt that was never yours could be interpreted as admitting it does belong to you.
Tips For Fighting Off Debt Scavengers
How should you respond if you are contacted about a zombie debt?
Don’t panic, and don’t immediately make a payment or provide any personal information. On the other hand, it might not be wise to assume it’s a scam and ignore calls or letters from a collection agency.
Requesting Validation
Start by asking for a debt validation letter, which should include information about the original creditor, the amount of the debt, and when it was incurred.
Don’t say anything to a debt collector until you have a chance to research the details, verify the debt is really yours, and determine whether it falls within the statute of limitations.
Disputing Mistakes
If you confirm that the debt is a mistake, has already been paid, or is expired, send a letter disputing the debt within 30 days (and keep a copy for your records).
If it shows up as a delinquency on your credit report, you can also file a dispute with the credit agency.
You are entitled to a free copy of your credit report weekly from each of the three nationwide credit agencies: Experian, TransUnion, and Equifax.
Visit www.annualcreditreport.com for more information
Resolving Unpaid Accounts
Sometimes a zombie debt results from a long-forgotten charge and/or a bill left behind unknowingly when moving from one place to another.
If you discover that you do owe the debt and have the money, resolving the unpaid account could help protect your credit.
If you can’t pay the entire amount right away, you may be able to negotiate a payment agreement
Addressing Mortgage Threats
Receiving a collection notice for a home mortgage could be a more serious and costly threat.
If you are contacted by an unfamiliar lender demanding money for a second mortgage, get a title report and check for any encumbrances or liens attached to your property.
If you find one, consider consulting an attorney to help negotiate with the lienholder or challenge the debt in court, depending on your personal situation.
Zombie debt can be a daunting challenge, but with knowledge and preparation, you can protect yourself from its harmful effects. Whether it’s an old mortgage resurfacing or a time-barred credit card bill, understanding your rights and taking proactive steps—such as requesting validation letters and disputing incorrect debts—can help you avoid costly mistakes. Always stay vigilant by monitoring your credit report regularly and knowing when it’s time to consult legal help for more complex situations.
By staying informed about zombie debt, you’ll be better equipped to handle any unexpected collection notices that come your way—and keep your financial future secure.
Contact your tax and financial advisors to determine the best moves for your situation.
1) NPR.com, May 18, 2024