BBB: What you need to know about zombie debt | Company

When someone with a debt doesn’t pay, the lender usually takes action — by phone, letter, or even legal action — to collect the money owed to them. In some cases, however, the debtor simply cannot pay or cannot be found. In other cases, the debtor files for bankruptcy and, depending on the type of debt owed, the debt may be put on hold, renegotiated, or fully discharged.

Sometimes, however, an old debt comes back to life and is called “zombie debt.”

Some of the most common zombie debt scenarios are:

  • Unpaid debts exceeding the statute of limitations
  • Debts due unpaid, but forgotten
  • Unpaid debts erased by bankruptcy
  • Debts already settled with the creditor
  • Fraudulent accusations of identity theft
  • Fake debts that “creditors” claim are due as part of a scam

How does debt come back to life?

Creditors often remove old debts from their records and resell them to third-party collectors. In some cases the debts are legitimate, but in other cases they are not. When debts are sold and resold, records may be incomplete or inaccurate. Think of it as a “telephone” game. The more a debt is transmitted, the more likely it is that the related information is erroneous.

When the debt collectors call

The legal treatment of old debts will depend on where you live and the type of debt in question. By law, debt collectors are not allowed to sue for an old debt if the statute of limitations has expired, however, they are still allowed to contact you and seek repayment of the old debt. Check the statute of limitations for each US state and Canadian province for more information.

However, if you begin to make payments or otherwise acknowledge the debt, the action may restore the collection agency’s legal right to take the matter to court. Never agree to make payment on a debt you are unsure of, even if the collection agency is pressing for payment.

The best way to start is to do a thorough investigation. Search old records for bank statements and payment notices. Gather as many facts as possible about the debt in question. Then, within 35 days of the first contact and without acknowledging that the debt belongs to you, ask the creditor for a debt validation letter. The Fair Debt Collection Practices Act (FDCPA) requires the collection agency to provide you with written proof of the validity of the debt or judgment against you, and the name and address of the original creditor if the debt has been resold. Once you have gathered this information, determine if the debt is really yours and if it still needs to be paid.

If the debt was yours, but you have already paid it, write a letter to the collection agency and ask them to cease all contact. Include proof of payment if available. The collection agency is legally required to stop contacting you under the FDCPA.

If the debt is not yours or is invalid, write a letter disputing its validity and, if applicable, attach any proof you may have.

If you owe the funds and can pay the debt, resolve the issue by first getting an agreement to pay in writing, then eliminating your unresolved debt.

If you owe the funds, but cannot pay the debt, you can seek debt relief through bankruptcy or through credit counseling.

When deciding which route to take, keep in mind that once a debt has passed the statute of limitations, collectors can no longer sue you for payment. Additionally, the FDCPA states that any unpaid debt must be removed from a person’s credit score after seven years. If you decide to start paying or pay off an old debt in full, it could kick-start the statute of limitations and affect your credit.

— The BBB is a non-profit, business-supported organization that sets and maintains high standards for fair and honest business behavior. Most of BBB’s consumer services are free. BBB provides objective advice, free BBB business profiles on over 5.3 million companies, 11,000 charity ratings, dispute resolution services, alerts and educational information on topics affecting market confidence . Visit bbb.org for more information. BBB Serving Central East Texas was founded in 1985 and serves 19 counties.

— The BBB is a non-profit, business-supported organization that sets and maintains high standards for fair and honest business behavior. Most of BBB’s consumer services are free. BBB provides objective advice, free BBB business profiles on over 5.3 million companies, 11,000 charity ratings, dispute resolution services, alerts and educational information on topics affecting market confidence . Visit bbb.org for more information. BBB Serving Central East Texas was founded in 1985 and serves 19 counties.