Are you haunted by 'zombie' debt?

Zombie debt
  • "Zombie" debts may be old, inaccurate and uncollectible.
  • A cease-and-desist letter should stop calls and letters.
  • Never ignore a lawsuit, even if the zombie debt isn't yours.

It's a scary truth, but some old consumer debts never die, even after they've been paid off, written off, settled or discharged in bankruptcy. Instead, these so-called "zombie" debts come back to life in a nether world, where they're sold and resold among collection agencies, each of which makes new attempts to collect.

Some of these supposed claims are based on nothing more than a spreadsheet of names and account numbers with little or no information about the original debt, according to Rick Jurgens, a consumer advocate at the National Consumer Law Center, a nonprofit corporation in Boston.

"There are whole over-the-counter marketplaces where people sell portfolios of these claims against consumers ... and that's what leads to this phenomenon of people getting calls from or getting sued by a company they never heard of," he says.

Prompt payment is no protection

People who pay all their bills on time aren't necessarily safe from zombies. In fact, some of these old debt claims are pursued against people who have no connection with the original debt, according to Timothy G. McFarlin, an attorney at McFarlin & Geurts in Irvine, Calif.

"There's no real good way to prevent yourself from getting on a list," he says. "It's pretty random."

People who have commonplace names are especially vulnerable, according to Ira Rheingold, executive director of the National Association of Consumer Advocates in Washington, D.C.

"It's not uncommon to see debt collectors going after the wrong person," he says. "They're also known to try to collect money they're not entitled to or amounts that far exceed what the debt should be."

Cease-and-desist letter

The best way to put a stop to zombie debt collections is to send a letter to the collection agency, McFarlin says.

The letter doesn't need to be long. In fact, one paragraph may be sufficient. Refer to the Fair Debt Collection Practices Act, or FDCPA, tell the company to "cease and desist" from any further contact, and send the letter by certified mail with a return receipt requested to create a record of the correspondence.

"Once they receive (the letter) and sign for it and are on notice, it becomes unlawful for them to contact you anymore," McFarlin says.

It's also a good idea to check your credit report because some collection agencies will "park" a zombie on a consumer's credit record. This is in hopes that he or she will make a payment based on the mistaken notion that it will undo the negative effect of the derogatory item, Rheingold says.

Never make a payment on a zombie, even if the collection agency promises to remove it from your credit report or leave you alone in exchange for what might seem like a nominal sum. The fact is that any payment, however small, can restart the statute of limitations and allow the collection agency to continue to pursue the full payment.

If you receive a notice that you're being sued over a debt that's not yours, don't ignore it because if you don't respond, the court may grant a judgment in favor of the collection agency. With a court order, the agency can try to extract the payment from your checking account or paycheck.

If you can bring an attorney to court with you to answer the summons, do so, Rheingold says.

"If you show up yourself, they are going to try to negotiate with you. If you get an attorney who shows up, (the court) will dismiss the case pretty regularly," he says.

When to take further action

If a collection agency continues to contact you after you've sent a cease-and-desist letter, the next step is to consult an attorney about your legal rights. Keep any letters (and the envelopes) you receive and make a log of the date, time and phone number of any telephone calls.

You might also want to file a complaint with the Federal Trade Commission.

"If the consumer feels like they have no connection with the debt and have made it clear that they don't want to be contacted or (the agency) has violated some federal law," McFarlin says, "it's definitely a good idea to file a complaint."

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