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What to Do When You're Haunted By Zombie Debt

Halloween is right around the corner, but the ghosts and ghouls aren’t the only things going bump in the night. Old debts can come back to haunt you when you least expect, and you can run into some serious problems if you’re not sure how to deal with them. When you’ve got a collection agency howling at your door over an unpaid debt, here’s what you need to know in order to banish it for good.

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What Is a Zombie Debt?

If you owe credit card loans, personal loans or medical bills, there’s a set amount of time that debt collectors have to sue you if you stop paying. Each state sets a statute of limitations on the different kinds of debt, and they typically range from two to six years. Once the statute expires, you still technically owe the money, but the creditor or collection agency can’t take legal action to force you to pay.

To that end, a zombie debt is one that’s technically uncollectible because the statute of limitations has expired. In more extreme cases, the collection agency may try to get you to pay a debt that you didn’t actually owe to begin with, or one that was discharged in a bankruptcy filing.

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There are certain kinds of debt collectors who will buy these old debts for pennies on the dollar and essentially resurrect them so they can try to coerce you into paying. Even if you end up settling for just a fraction of the original balance, they’re still making a profit since they purchased the debt so cheaply.

When Does the Clock Start Ticking?

Generally, the statute of limitations on an unpaid debt starts counting down from the date of the last activity on the account. That rule applies to any activity, such as making a payment or acknowledging that you owe the debt either verbally or in a written communication to the creditor. The Fair Debt Collection Practices Act caps the statute of limitations at a maximum of six years, although most states specify a much shorter time frame.

How Debt Collectors Try to Force You to Pay

Federal law spells out the kind of action collection agencies can and can’t take when it comes to contacting consumers, but there’s usually a fine line between what’s considered acceptable practice and outright harassment. Some of the tactics that zombie debt collectors may engage in include threatening to sue you if you don’t pay, claiming that they’ll contact your employer or simply calling you repeatedly.

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The one thing they often count on is that most consumers don’t know their rights when it comes to debt collection. For instance, they may try to use a soft approach and tell you that if you agree to settle the debt for a lump sum, the remaining balance will be forgiven. Once you enter into this kind of agreement, though, you restart the clock on the statute of limitations, which opens up the door once again to a lawsuit.

What to Do if You’re Being Pursued by Zombie Debt

If you get a phone call saying that you owe a debt you know to be outside the statute of limitations, your best bet is to say as little as possible. Never acknowledge that the debt is yours and always request a written validation. They’re legally required to provide you with proof that you owe what they claim, and once they do, you can formally dispute the debt.

When you write a dispute letter, make sure you reference the account number in question, and cite your reasons for why you don’t believe you’re responsible for the debt. If you know that it’s outside the statute of limitations, don’t hesitate to reference any applicable legal statutes. Finally, you should firmly request that the company in question halt any collection actions that are in progress and cease and desist from contacting you again.

Dealing with Debt Collectors? Know Your Rights

That should stop the zombie debt collector dead in their tracks. But if it doesn’t, you do have legal recourse. If push comes to shove, you can sue them for violating your rights under the Fair Debt Collection Practices Act to the tune of $1,000. Once you advise the collection agency of your intent to do so, there’s a good chance they’ll be more inclined to give up the chase.

Photo credit: flickr

Rebecca Lake Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She's worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
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