Though you might be imagining a scene from The Walking Dead, zombie debt is a far scarier reality.
Zombie debt is a type of old debt that has fallen off your credit report, but someone is still trying to collect it. It’s usually a long-forgotten debt or one that has been written off as a bad debt by the original creditor.
You may think this debt is nothing to worry about until it suddenly rises from the grave one day.
How can zombie debt rise from the grave?
Usually, zombie debt occurs when an original creditor gives up on the debt and sells it to a collection agency.
That debt collection agency then tries to collect the debt, according to state and federal regulations.
Common reasons for zombie debt include:
- Debts that are already settled with a creditor
- Debts you do owe but forgot about
- Debts wiped out in a bankruptcy
- Fraudulent charges from identity theft
- Debts that have gone beyond the statute of limitations.
Do you have to pay zombie debt?
Whatever the reason for your zombie debt, do you really have to pay it? That will all depend on the circumstances.
If the debt has been written off by the original creditor and has passed the statute of limitations, you can’t be sued for payment. The problem is that most people are unaware of this and will simply pay up. However, if you make even one payment on this debt, it can be enough to resurrect it.
While you may not have to pay this debt, there could be benefits to doing so if it is genuinely your debt. One is that it removes the stress, another is that it can protect your credit score if it suddenly pops back up on your report.
Steps to take before handing over any money
Debt collection agencies can pile on the pressure when they call or email asking for repayment. Many people will panic and agree to pay, but make sure you step away and think carefully first. Take these steps below before you agree to pay anything.
Dig through your records
Your first step should be to refer to your own records such as bank statements, invoices or debt payment agreements. Try to gather proof of payment, if applicable, and the date you first took out the credit.
All this evidence will help you determine whether you are liable to pay anything. It will act as your primary defense if you don’t owe the debt and contest it.
Check if the debt is past the statute of limitations
The statute of limitations is a time limit on how long a lender can attempt to collect a debt. In most U.S. states, it’s three-to-six years but it can be even shorter than this.
After the statute of limitations has passed, the debt is still considered valid, but you are no longer legally required to pay it.
As most people are unaware of this, debt collection agencies go after people in the hope that at least some of them will pay.
Ask for a debt validation letter
Before agreeing to anything, make sure you request a debt validation letter that clearly shows all the information the debt collector has on the debt.
This should outline everything about the debt, such as the amount owed, information on the original credit, and how much of the debt has been paid. This allows you to verify that it is your debt and it is still outstanding.
What are your options for dealing with zombie debt?
Your best plan of action will depend on the cause of the zombie debt.
- If you have already paid the debt, you can write a letter to the collections agency to ask them to stop contacting you. According to the Fair Debt Collections Practices Act, the agency must back off.
- If it’s not your debt, you can write a letter to challenge the debt, ideally within the first 30 days of the agency contacting you.
- If it is your debt and you can pay, it may be best to try and resolve the debt. This could be the best move to protect yourself against any damage to your credit score. If you go down this route and agree to pay the debt, make sure you get any payment agreement in writing before parting with your money.
- If you owe the debt but can’t pay it, the best course of action is to pursue debt relief options. For example credit counseling or even bankruptcy in some cases.
Whatever choice you make, the worst thing you can do is ignore zombie debt and hope it goes away. The best approach is to be proactive, get everything in writing, and seek legal advice where necessary.