Rising from the dead: understanding zombie debt

Zombie debt is a term that describes old debts that have been written off or deemed uncollectible by the original creditor. This usually happens when zero payments have been received for a specific period, typically six months or more, and the creditor has exhausted all efforts to collect the debt. These debts are then typically sold to debt collectors for a fraction of their original value, and the collectors then attempt to collect on them. 

The term “zombie” refers to the circumstances when the debt rises from the dead and is pursued again. Consumers can protect themselves by being aware of the potential for zombie debt, knowing how to avoid it, and understanding their rights when collectors come knocking. 

What Kinds of Debts Can Come Back to Life?

Some common types of debt that can become zombie debt include credit cards, medical, utility bills, personal loans such as car loans, and student loans. However, any financial obligation can become zombie debt if written or charged off by the original creditor and sold to a collection agency. 

When this happens, it does not mean the debt is forgiven or the borrower is no longer responsible for paying it. The debt will remain on the borrower’s credit report for up to seven years from the date of the first missed payment, which can significantly lower their credit score.

How Long Can Zombie Debt Last?

The length that zombie debt lasts depends on the statute of limitations for the particular type of debt and the laws in the state where the debt was incurred. Once the statute of limitations has passed, the debt is no longer legally collectible, and the creditor cannot sue the borrower for it.

However, even if the statute of limitations has passed, debt collectors may still attempt to collect on the debt through other means, such as phone calls and letters. In some cases, they may even threaten legal action or report the debt to credit bureaus, which can negatively impact the borrower’s credit score.

Here are some resources you can use to find out the statute of limitations for debt by state and type:

• State Attorney General’s Office 
• National Consumer Law Center 
• Consumer Financial Protection Bureau

How to Avoid Zombie Debt from Rising from the Dead

Here are a few steps you can take to avoid zombie debt:

• Keep track of your debts and payments.
• Check your credit report regularly.
• Respond promptly to any collection letters or calls.
• Negotiate with debt collectors to see if you can settle the debt for a lower amount.
• Seek legal help if necessary.

If you have a charged-off debt, take action to address the debt as soon as possible. Try to negotiate a settlement with the debt collector or dispute the debt if you believe it is inaccurate or fraudulent. You may also seek the advice of a financial counselor or debt relief professional to plan for paying off the debt before it comes back to haunt you.

What Are My Rights?

Borrowers have rights under the Fair Debt Collection Practices Act (FDCPA), which prohibits debt collectors from using abusive, deceptive, or unfair practices to collect debts. These include:

• The right to be treated with respect. Debt collectors are prohibited from using abusive or harassing language, threatening violence or harm, or making false statements about your debt.
• The right to request verification of the debt. 
• The right to dispute the debt if you believe you do not owe the debt or the amount is incorrect.
• The right to limit communication. You have the right to request that the debt collector only contact you in writing or to restrict the times and places they can contact you.
• The right to sue for damages and attorney fees if a debt collector violates your rights under the FDCPA.

In addition to these rights, the FDCPA also restricts the actions debt collectors can take to collect a debt. For example, debt collectors can only call you after 8 a.m. or before 9 p.m. If you’re dealing with zombie debt or any other debt collection activity, consider consulting with a consumer protection attorney or a credit counseling agency to understand your rights and options.

How Do I Find a Reputable Consumer Protection Attorney?

Here are some resources for finding a qualified consumer protection attorney:

• Check with local bar associations for a list of attorneys in your area who have experience handling cases similar to yours.
• Search online directories such as Avvo, Martindale, or FindLaw.
• Reach out to your state’s legal aid office for financial assistance. 

When meeting with a potential attorney, ask about their experience handling cases similar to yours, their fees and billing practices, and their approach to working with clients. You should also feel comfortable asking questions and expressing any concerns.

Finances FYI is presented by JP Morgan.