What Are Zombie Debts and How They Can Hunt You Again
Tonight last week, John Oliver bought $ 15 million in outstanding medical debt to prove how easy it is to start a debt buying company. These were the debts of ordinary people, presumably due to operations, hospital stays, medical procedures, and so on. Instead of buying debt for profit, Oliver forgave him. All this. The segment outlined many of the shortcomings of the debt and credit industry, but in particular the concept of “zombie debt,” or old, forgotten debt that somehow resurfaces.
As Nolo’s legal website explains , “zombie debt” is debt that is “very old or no longer owed.” It’s a debt that comes alive when a collection agency buys it out cheaply. This is not the same as filling a credit card to the max and being unable to pay or being overwhelmed with invoices that cannot be bargained for. Zombie debts are often invalid and collectors use intimidating and cunning methods to get people to pay.
How zombie debt works
Debt collectors make money when they buy old debt at incredibly low prices and force people to pay a fraction of the original amount, which is more than they paid themselves. In theory, that doesn’t sound so bad, does it? Collectors are simply helping companies recover lost funds, and in the end we must all get our debts back. Fair.
- debts that you have already paid off with a company or other debt collector
- debts settled in bankruptcy
- expired debts that you may have forgotten or did not notice, that have passed the statute of limitations
- debts that no longer appear on your credit report , usually after seven years
- debts that you have never had, such as debts arising from identity theft
It is easy to say, “If you have a past debt, you owe it.” Zombie debt doesn’t work that neatly. As the FTC points out, they are often the result of identity theft, and it could even be debts that you have already paid off.
How collectors bypass bad debts
The FTC warns that you can restart the debt statute clock if you make (or simply promise to make) payments. This is important because this is how the debt collectors make a profit.
“Statute of limitations” means that debt collectors can sue you for a limited period of time to collect your overdue debt. After this time, these unpaid debts become ” overdue ” and the collector cannot sue the overdue debts. This period – the statute of limitations – depends on your state. Here are the statutes of limitations for all 50 states .
When you restart your watch, collectors can sue you, and many of them do. When consumers ignore these lawsuits, which is often the case, they have to pay, which can lead to lower wages .
However, don’t confuse “statute of limitations” with how long negative items remain on your credit report. Most of the outstanding debt falls out of your credit report seven years from the date it becomes overdue, no matter how many times the debt has been bought or sold. This is separate from the statute of limitations.
How to deal with zombie debt
Unfortunately, not all of us are lucky enough to buy a cable news program and forgive our zombie debt. We’ve already told you how to deal with debt collectors, and the precautions are usually the same as when dealing with zombie debt.
As you can see in the Last Week Tonight segment (and as you may have experienced yourself), debt collectors can be frustrating. They use all sorts of tactics (and in some cases, intimidation and outright lies) to get you to pay, from non-stop calls to contacting your friends and family.
However, thanks to the Fair Debt Collection Practices Act (FDCPA), debt collectors are not allowed to call at certain hours, use foul language or threaten. So if you are dealing with an agency that breaks the rules, you can report it to the FTC . Plus, offensive or threatening language is also a wake-up call , so make sure you don’t have any scams , and here are a few questions you can ask to expose a fake debt collector. The FTC explains your rights in dealing with debt collectors .
Assuming the agency is legitimate, your next task is to sort it out and make sure the debt is valid. Check your credit report and see if the debt is listed. Otherwise, zombie debt could be the result of identity theft, and you can find sample letters to help you challenge the debt at identitytheft.gov .
From there, request a “Verification Notice”. Consumer Reports explains how it works:
Even if the caller gives plausible answers, request a “confirmation notice” to verify the debt. The notice, which must be sent within five days of initial contact, must include the amount owed, the name of the creditor, and a description of your rights in accordance with federal fair collection practices.
The Consumer Financial Protection Bureau also offers sample letter requests . To avoid renewing the statute of limitations, do not even discuss the debt until you receive this notice.
If you really owe money and think you should pay, dealing with collectors can still be tricky. However, we have written a guide to help you navigate the process.
In most cases, it is easier said than done to deal with zombie debt. A quirky TV host can come to your rescue, but don’t count on it. At the very least, you should read your credit report, know the statute of limitations for any past debts, and understand your rights.