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What is zombie debt?

A confused man looks over paperwork.
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Do you ever worry that old debts will come back to haunt you? That’s exactly what zombie debt does. Zombie debts, also called phantom debts, are old or expired debts that scheming investors or scammers purchase at a massive discount. They then try to get misinformed debtors to pay back money that they likely aren’t legally responsible for anymore.

Knowing about zombie debt equips you to handle scammers appropriately. Old debt usually falls off your credit report after seven years. If a debt collector contacts you, do your research to make sure it’s a legitimate claim. Even if you are responsible for a debt, you may not need to pay the full amount. If you know what you are legally responsible for and what you are not, you can easily spot debt collection scams.

How zombie debt works

Although debt collectors can’t take you to court to collect on zombie debts, they may be allowed to contact you to collect the money. Because the cost to purchase expired debt is often low — sometimes pennies per dollar — zombie debt collectors can earn decent profits when consumers agree to repay old debt. Unless the state you’re living in requires a debt collector to disclose that it can’t sue you to collect the debt, you might take actions that revive the debt.

For example, if you pay an expired debt in part or in full or even acknowledge that it’s yours, this could reset the clock on the debt. That means the collector can sue you or report the debt to the credit bureaus, depending on the debt collection laws in your state.

Tactics zombie debt collectors use

Zombie debt collectors, or debt scavengers, know how to make you worry and often try to trick you into paying a debt you don’t owe. Here are some common tactics they may try:

  • Ask you to pay a small amount in exchange for leaving you alone. Often, you don’t legally have to pay anything on a zombie debt. However, debt scavengers may try to convince you that if you pay them a small portion of the debt, they will leave you alone. You can ask them to leave you alone without paying anything under the Fair Debt Collections Practices Act (FDCPA). If you send them a written letter telling them you don’t want to be contacted any longer, they must stop.
  • Threaten to sue you if you don’t pay. Zombie debt collectors can’t legally sue you if a debt is time-barred. They may threaten to sue, but it is unlikely they have any grounds to sue you.
  • Verbally abuse or harass you. If you are receiving threats, harsh words, or excessive calls, you are being harassed. The FDCPA makes this type of harassment illegal. While it may be scary, writing a letter to the debt collector telling them to stop further communication can help.
  • Lie and tell you they are a “litigation firm.” While most debt scavengers aren’t lawyers, they may lie and tell you this is true. They often don’t have any legal grounds to sue you or pursue payment for zombie debts.

Zombie debt collectors have been known to use these tactics and more to try to collect on zombie debts. You must know your rights regarding debt collections and understand when you are responsible for a debt.

Debts that zombie-debt collectors try to collect

While debt collectors can attempt to collect on any type of debt, here are some of the most common types of debts:

Discharged or settled debts

If you’ve gone through Chapter 7 bankruptcy, some of your debts may be discharged, which means you’re no longer responsible for paying them back. With a settled debt, you should have a written agreement stating you’re no longer legally responsible for the debt.

Time-barred debt

Most types of debt have a statute of limitations, except for federal student loans. This means after debt reaches a certain age, a debt collector can’t sue you for it. The statute of limitations on debt varies according to which state you live in and by type of debt, but it usually ranges from three to ten years.

Debt that has fallen off your credit reports

If you have a negative item on your credit report, such as a collection or late payment, a collector can report it to the credit bureaus for up to seven years. However, if you make a payment on a zombie debt or agree to do so, the collector can report the debt to the credit bureaus, restarting the seven-year clock.

Debt that doesn’t belong to you

A debt collector could mistake you for someone else, or someone could steal your identity and make fraudulent charges in your name. If the latter occurs, report the identity theft to the Federal Trade Commission (FTC) immediately and notify your bank and creditors.

How to protect yourself from zombie debt

Protecting yourself from zombie debt is all about knowing the law and doing your research. If you are clear on what is allowed, you can easily see when someone is trying to scam you. Follow these steps to keep debt scavengers at bay.

1. Research the debt

Figure out who was owed the original debt and who is responsible for the debt. It’s possible that you are being charged with a debt that simply isn’t yours. If the charge seems unfamiliar and you don’t have a record of it, you may have been contacted by mistake.

2. Request a debt validation letter

If you’re unsure whether the debt belongs to you, ask the creditor for a validation notice containing how much the debt is, who the original creditor is and when the debt was incurred. Check this against your records to confirm whether the debt is yours. Afterward, send a dispute letter to the creditor if the debt isn’t yours.

3. Determine your next action

If you paid the debt, send a dispute letter to the creditor if the debt has been paid. The debt collector will need to send proof that the debt is yours to validate it, but likely they will leave you alone because they don’t have proof.

Additionally, if the debt is listed on your credit report, dispute it directly with the three major credit bureaus: TransUnion, Experian and Equifax.

If the debt is not yours or is invalid, you will want to take similar steps. Ask the debt collector to send verification of the debt. If they continue contacting you, you can send a letter asking them to stop.

If you owe and can pay, start by understanding your rights through the FDCPA. With a debt still listed, consider negotiating with your creditor to settle for less than you owe. Make sure to get the collector to agree in writing that it can’t sue you to collect the remaining amount. Pay your debt as soon as possible, and check to see how it may have impacted your credit.

You can view your credit reports for free at AnnualCreditReport.com. You can view one free report from the three major credit bureaus each year.

If you owe and can’t pay, consider all your options. If you could pay a lower amount, try to negotiate a lower payment or payment plan with the debt collector. Think about not paying until you are able. Although, this may impact your credit score negatively. If payment isn’t an option, you might want to file for bankruptcy which can free you of the responsibility for your debts.

No matter what you decide to do, keep a written record of all correspondence with the debt collector. This way, you have evidence should you need to pursue legal charges.

Explain how to go about these situations with actionable, specific information someone should take.

4. Tell the debt collector to stop contacting you

Under the Fair Debt Collection Practices Act (FDCPA), you have the right to tell a zombie-debt collector not to contact you. To do this, the FTC recommends that you send the collector a certified letter with a return receipt so you can confirm it has been received. If you need help creating a letter, the Consumer Financial Protection Bureau (CFPB) has sample letters on its website.

If a zombie-debt collector violates the FDCPA by harassing or threatening to sue you, file a complaint with the CFPB, report the violation to your state’s attorney general office or sue the debt collector in state or federal court.

5. Don’t share any information or admit to the debt

If the zombie debt isn’t listed on your credit report, consider not making any payments toward it or acknowledging that it’s yours. Remember that you’ll be legally responsible for the debt in some states if you take one of those actions.

How to prevent zombie debt

To prevent current debt from becoming zombie debt, pay it on time and keep records of your payment history. If you’re struggling to repay multiple debts, consider using a debt consolidation loan to consolidate your debt into one monthly payment, ideally with a lower interest rate.

You can also use a debt payoff calculator to develop a repayment plan that fits your budget.

The bottom line

When a debt collector contacts you about a debt that has expired, has already been paid off or doesn’t belong to you, you aren’t legally responsible for repaying it. If you’re unsure whether the debt is yours or if it’s expired, ask the collector to provide you with the age of the debt or do your own research. Dispute the debt with the credit bureaus or creditor if you find that an error has been made.

However, if the zombie debt does belong to you and is still listed on your credit report, consider paying it off or settling with the original creditor or debt collector to pay less than what’s owed.

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Written by
Emma Woodward
Contributing writer
Emma Woodward is a former contributor for Bankrate and a freelance writer who loves writing to demystify personal finance topics. She has written for companies and publications like Finch, Toast, JBD Clothiers and The Financial Diet.
Edited by
Loans Editor, Former Insurance Editor