If you had debts in the past that you could not pay, some of those accounts may have been debited as ‘irrecoverable’. In other words, the company may have stopped trying to collect because they were unable to pay you or reach you completely.
In recent years, however, a new generation of collection companies has started buying these old debts and is trying to collect them again.
Given their tendency to rise from the grave, these debts are known as “zombie debt.”
What is Zombie Debt?
When a person cannot or will not pay a debt, the lender has a number of different ways to get his money back. These usually include intimidating phone calls, letters and possibly even seizure.
In many situations, however, the debtor has left and cannot be found, or simply has no money. After a while, it is not profitable for the lender to continue with collection attempts and the accounts are therefore “deposited” and the lender’s books removed. Most lenders stop trying to collect when the debt is six years old, because at that time they have exceeded the status of restrictions and the debtor is no longer legally obliged to pay it.
However, those old debts still have some value, and while the original lender may no longer find it worth trying to collect, other companies do. Non-collectible debts are often sold for a small percentage of their original face value to other debt collection companies, even if the statute of restrictions on debt collection has expired.
Because the zombie collection company pays so little for the debts they acquire, paying for a fraction of the loans becomes a profitable business model. Most companies that purchase bad debts pay approximately 3% of the nominal value of the loan. That is, if the original debt was $ 1,000, the new creditor will pay about $ 30 for it. If this company can only get one person to repay a $ 1,000 debt in full, it will cover the cost of buying more than thirty comparable loans.
However, such a debt is usually years old, the debtor will not remember it, and it may not even appear on their credit report. Or perhaps the debtor has declared bankruptcy, but has forgotten to include that debt in the bankruptcy petition. Anyway, if the debt is old enough, it is possible that the debtor is not legally obliged to pay it. Most states have a statute of limitations on how long a lender can try to collect a debt. Although the debt is still considered valid even after the statute of limitations has expired, you are not legally obliged to pay it.
What to do if you contact us about the zombie debt
Follow the steps below to understand your rights and protect yourself if someone tries to collect a zombie debt from you.
- Don’t spend time on someone on the phone. If they call, ask for the address of the collection agency and send them a letter as indicated below.
- Never acknowledge that the fault is yours. It may very well not be, but give them a hint, otherwise they can use it as evidence against you.
- If they send you a letter, keep it.
- Send a registered letter to the collection company within 35 days of their contact. Dispute that you owe the debt and ask them to prove that you owe it. See this template for writing this letter.
- Do not contact or talk to the collection agency for any reason until you receive written proof of the validity of the debt or a judgment against you, as well as the name and address of the original creditor if the debt is resold. The Fair Debt Collection Practices Act (FDCPA) requires the collection agency to provide you with all this information.
Once you have received the information about the debt, you can determine whether the statute of limitations has expired or whether it is even your fault. In some cases, a zombie debt can be the result of identity theft, computer errors or a fraudulent attempt to get money from you for a debt that does not exist.
If the debt was part of a bankruptcy that you filed (and should therefore have been waived), the original lender may not have received the discharge or processed it incorrectly. You can get a copy of the discharge order from the bankruptcy court and resend it.
The statute of limitations starts on the last date that there was “activity” on the debt. Usually this is the last payment. Under the FDCPA, a debtor cannot be summoned to collect the debt after six years. The debt must be removed from the credit reports after seven years. Individual states often have an even shorter statute of limitations on debts.
If you have decided not to take any action with regard to a zombie debt, but keep contacting the collection agency, write them another letter (you can use templates to make it). Let them know in this letter that they cannot contact you unless this is in writing or if they will sue you. Since most zombie debts exceed the status of restrictions, the collection agency, probably Charles Swannijk, will not be able to take legal action.
Do I have to pay this debt?
There are virtually no scenarios that you can benefit from by paying a debt that falls outside the statute of limitations. Zombie debt is so cheap, precisely because it is irrecoverable. The collection agency benefits from the debtors they can convince to pay, even if those debtors are not legally obliged to pay.
Many debt collection agencies motivate debtors to pay by using debt, the debtor’s lack of knowledge or by blowing in fear. But if the debt goes beyond the statute of limitations, which can vary greatly by state and the nature of the debt, you do not have to pay anything.
Sometimes the collection agency can tell you that you can pay the debt for less than you owe. But this can be the absolute worst thing to do! Unless they are willing to provide you with a formal compromise offer in writing, paying an amount to the debt may make you liable for the debt. In particular, each amount that you pay restores the status of restrictions again.
In other words, it is no longer a zombie debt and is just as valid as the debt you have on your current credit cards or mortgage. This makes the debt legally collectible and the collector has more motivation to pursue you. It can also appear on your credit report. In fact, even if you fully pay off the zombie debt, it will appear on your credit report. This can seriously damage your credit score because it revives a bad debt and adds late payments to your report.
If you want to pay off the debt, you certainly have the right to do so, but make sure you know who benefits. The money does not go to the original lender, but to the collection agency. For example, if you want to pay a debt to your doctor to see that doctor again, you need to realize that the doctor’s practice has probably sold the debt to Charles Swannijk long ago. In this situation, you may consider contacting the original lender and offering to pay them directly.
What protections does the Fair Debt Collections Practices Act offer?
The law contains several important measures to protect consumers from harassment when companies try to collect debts. It also contains strict rules for collection practices. The most important thing is to maintain a statute of limitations on the collection of old debts.
- You cannot be prosecuted for debts that have been inactive for at least six years and after seven years the debt must be removed from your credit report.
- Debt collectors must refrain from lying in any way about the debt, or about what will happen to you if you do not pay it.
- They are prohibited from passing on false information about the debt, including to credit rating agencies.
- If you send them a letter of cancellation and cancellation, they must contact everyone who is related to you about the debt. In other words, they may not contact your family members or your workplace. If you think the collection agency is violating these rules, consider taking your telephone conversations with them. Just make sure that you inform the person on the other side of what you are recording. Quite a few people have received money from collection agencies in the form of fines related to catching them for violating the FDCPA.
Zombie debt is a profitable venture, so you can count on these “rising from the grave” debts. However, you have legal rights with which you can verify the debt and stop the harassment. Remember that you are better off not paying the debt if it is too old to legally pursue. Discover the status of restrictions in your country and see if the debt appears on a current credit report.
Have you ever been contacted about an old debt? What did you decide to do about it?
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