Pine Advisors Shares How to Know if You Should Be Concerned About Zombie Debt

Zombie debt sounds like something from a Halloween horror movie, but it can be an issue that, if not addressed carefully, can rear its ugly head and harm you financially.

Pine Advisors, a company that helps people who struggle with their debts, wants to provide guidance to help people not get sucked back into zombie debts that rise from the dead, just like zombies in the movies.

What is Zombie Debt? 

Zombie debt is debt that you still owe but has passed the statute of limitations in your state. According to Investopedia, the statute of limitations on unsecured debt in most states averages around six years, but it is as short as three years in some states. In other words, no one can sue you for this debt because the debt is several years old.

Why Doesn’t Zombie Debt Just Fade Away? 

Once you owe a creditor money, that debt remains on the books. After a certain number of years, it no longer haunts your credit reports. The problem is that such debt is often sold to collections agencies that pay pennies on the dollar for the debt. Then, they are the creditor, and they have every legal right to pursue you for the debt that they have purchased.

How Can I Protect Myself from Zombie Debt? 

Make Them Show Proof 

The very first thing you need to do is to ascertain if the collection agency indeed purchased the debt. You have a very short window to ask for this information, usually 30 days. You should also make them show you proof that you owe the debt. The terminology for the creditor’s proof of your indebtedness to them is a debt validation letter. This letter must show the name of the original creditor, the amount you owe and the date when you stopped making payments.

If the new creditor does not have proof that you owe the money or that they purchased the debt, then you need to send a letter of dispute within 30 days of receiving notification from the new creditor that you owe the debt.

The dispute letter makes the creditor legally have to stop collection efforts until it is resolved that you actually owe the debt.

According to Nerdwallet, if you fail to dispute the debt within the 30-day window, the debt is considered owed by default. You can dispute the debt after 30 days, but the collector does not have to suspend their collection efforts while the dispute is being resolved.

Sadly, there are some unscrupulous actors out there who will look up old credit records and claim that they purchased a debt when this was not the case. Then, you could be making payments on old debt to a fraudulent company.

Nerdwallet warns consumers other instances when you are being asked to pay for a debt you don’t owe include cases of identity theft where someone has made a purchase with your credit fraudulently or where you have already paid off the original creditor or received protection from the debt through a bankruptcy proceeding.

If you believe that a company is fraudulently trying to get you to pay off an old debt to them that you do not owe, you need to contact the U.S. Consumer Finance Protection Bureau and file a claim against the false creditor. They are violating the federal Fair Debt Collection Practices Act.

Do Not Make Agreements to Make Payments 

According to Investopedia, unless you would really like to pay off the debt and are sure you will be able to make all of the payments on time in order to pay off the old debt, do not make any payments nor any agreements to make payments. If you do either, the statute of limitations will begin anew, and your credit score can suffer. Also, if you pay for a while but get into a bad financial situation and have to quit making the payments, they can take you to court and sue you for the debt because the statute of limitations time period began again.

If you are sued in court for this old debt because you made a payment in good faith, your wages could be garnished. Also, they can legally charge you other fees that they incur in the process of collecting the debt, which can include legal fees. Making a payment or agreeing to make a payment on zombie debt is very risky.

Ask Them to Stop Contacting You 

If you dispute the debt and have no intention of paying it off, and they still are contacting you, you can write them a letter asking them to only contact you in writing or if they intend to sue you.

Beware Partial Payment Agreements 

Some creditors will offer to remove the debt from your record for a partial, lump-sum payment. This is also risky. If you opt for this strategy, only proceed if you have an agreement with the creditor that is in writing. If you don’t get an agreement in writing for the partial payment, the creditor might sell the remainder of the debt to yet another creditor who will demand payment of the rest of the debt.

You also have to consider that partial payment, as opposed to paying the debt in full, will harm your credit score.

Keep All Financial Records 

Even if you made no payments or agreements to make payments to the debt collector, some unscrupulous companies might still take you to court, even though the statute of limitations has run out. In that case, you will have to respond in writing to the summons and go to court with your records in hand.

As long as you can prove when the debt was incurred and you missed your first payment, you will win in court and not have your wages garnished. If you don’t have your records, then you risk losing the lawsuit.

Respond to Any Court Summons Quickly 

If you are summoned to court on the zombie debt, you will have a very tiny window of time in which to respond in writing to the court summons. It is as short as five days but usually for 10 days. The court paperwork will clearly explain how to respond. If you are unclear, take the paperwork to your nearest law library or legal aid society for information on how to respond to the summons.

If you neither respond to the summons nor attend the court hearing, the creditor will win and the judge will likely garnish your wages, even if the statute of limitations has run out in your state.

If You Don’t Pay the Debt Off 

Your credit score and your credit record will show the defaulted debt for up to seven and a half years if you default on the debt.

At Pine Advisors, we have solutions for consumers who are heavily in debt. Call us for help today. 

No comments