What Is Zombie Debt?

What Is Zombie Debt?

By Charles Joseph | Editor, Financial Affairs
Reviewed by Corey Michael | Senior Financial Analyst

Zombie Debt refers to old, previously defaulted debts that seemingly come back to life, seeking repayment from the debtor–like a zombie.

Often, these debts come from collections agencies who have purchased the right to collect the overdue debt from the original creditor.

But why would a debt that seemed to be dead mysteriously rise from the dead?

One reason Zombie Debt arises is due to the uncollected debt being bought and sold multiple times in the debt market.

When a creditor is unsuccessful in retrieving the owed amount, they may sell it to collections agencies or third-party collections firms at a lower price.

At times, these debt collection agencies, too, exhaust their options and end up selling the debt to other firms, making it difficult to keep track of who ultimately holds the claim.

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In some cases, debtors may not even be aware that these old debts have resurfaced, leading to negative consequences such as credit score infringement committed by debt collectors.

So how does one deal with Zombie Debt?

First, familiarize yourself with your rights under the Fair Debt Collection Practices Act (FDCPA). It provides protection against unfair debt collection behaviors, giving you a legal stance against unprincipled collectors.

Second, always ensure you verify all information regarding past debts through proper channels to avoid fraudulent debts.

Should the debt be proven authentic and the statute of limitations not yet expired, consider negotiating for a settlement or paying it off entirely–depending on your financial capacity–to make it less of a hurdle for your financial future.

Key Takeaways

  • Zombie Debt refers to old, defaulted debts that have been sold by the original creditor to collections agencies and have resurfaced, often unbeknownst to the debtor.
  • These debts get their name from the way they appear to come back to life, seeking repayment, similar to a zombie.
  • The reason why Zombie Debt arises is often due to the debt being bought and sold multiple times in the debt market, causing confusion about who actually holds the claim to the debt.
  • Zombie Debt can have negative effects on the debtor, such as impacting their credit score, often without their knowledge.
  • To deal with Zombie Debt, it’s important to familiarize oneself with their rights under the Fair Debt Collection Practices Act (FDCPA), which protects against unfair debt collection practices.
  • Additionally, it’s important to verify all information about past debts to avoid fraudulent claims, and if the debt is legitimate and not expired, consider negotiating a settlement or paying it off entirely based on your financial capability.

Related Questions

1. How can I recognize Zombie Debt?

A sudden call or mail from a debt collector about an old debt usually indicates Zombie Debt. Ideally, review your personal finance records as well to confirm the debt in question.

2. What’s the role of the statute of limitations in handling Zombie Debt?

The statute of limitations establishes a legal time frame within which a creditor can pursue a debtor to collect the owed amount. Once the limitation period is over, a debt typically enters Zombie Debt territory.

3. Can acknowledging or making partial payments reset the statute of limitations on Zombie Debt?

Yes, in some states, taking any action on a Zombie Debt – such as acknowledging it or making partial payments – can restart the statute of limitations, causing legal trouble for the debtor.

4. Is it possible to prevent a negative credit rating due to Zombie Debt?

Verification and proper documentation of debt-related information are essential preventive measures. Being proactive can help you protect your credit score and minimize the overall risk of negative credit.

5. What should I do if a collections agency harasses me for Zombie Debt repayment?

First, be aware of your rights under the FDCPA. Consider contacting a legal professional or consulting a financial counselor for assistance during the negotiation process.