Debt Consolidation

The Facts About Debt

Night of the Living Debt: Eliminating “Zombie Debt” From Your Credit Score

Filed under: Debt, Family Finance
Tags: — Written by: Simos
May 7, 2010
Don't let your expired debts "rise from the grave!"

Don't let your expired debts "rise from the grave!"
Photo by: dhollister (Flickr)

In a previous post, we focused on debt collectors and unfair collection practices.

Today, we’ll discuss “zombie debt”: debt that continues to linger “in collection” long after it is paid.

This is a recent phenomenon, owing to the huge proliferation of third-party debt collectors and debt buyers touched on earlier.

Because of low levels of communication between these middlemen, not to mention the possibility of unscrupulous practices, different companies may attempt to collect on the same debt multiple times as it passes from hand to hand.

Zombie debt can be the result of honest error, but requires even more vigilance and persistence to solve than other forms of debt collection abuse.

The Credit Report: Key to Your Zombie Debt Arsenal

The problem of zombie debt makes it even more important to monitor your credit score on a regular basis. Negative marks on your credit report are generally removed after seven years and cannot be used as the basis of your credit score; a debt collector can attempt to manipulate this by telling credit agencies that an old debt is a new one. If the debt has “changed hands”, this ruse could go undetected unless you catch it yourself.

There are three major credit reporting agencies: Experian, Equifax, and TransUnion. The best information is obtained by reviewing your reports from all of them on a regular basis. Luckily, under the Fair Credit Reporting Act, you are entitled to a free credit report from each agency once every 12 months. The official web “hub” for ordering a complimentary report from any or all of the three agencies is AnnualCreditReport.com.

If you find an error on your credit report, it’s up to you to dispute it with the three agencies. Remember: zombie debt abuses are based on the idea that you won’t fight back! If you believe a debt collector is intentionally engaging in unfair practices, whether in regards to credit card debt, household bills, or any other transaction, communicate with them only in writing and keep copious records. Consider retaining an attorney: many zombie debts are related to violations of the Fair Credit Reporting Act, a federal law that can carry stiff penalties for those who do not follow it.

The Statute of Limitations: Sunlight to Turn Those Old Debts to Dust

Another important thing to remember is that there is a statute of limitation to any debt. After the statute of limitation, creditors and debt collectors can no longer take legal action in pursuit of the debt. The specific amount of time in each case varies by state and by the type of debt under consideration; however, every debt has a limit, and the countdown generally begins within a short time after the account first goes delinquent.

Because a lawsuit is no longer possible after that time, any claim to the contrary by a debt collector violates federal standards, which may include the Fair Credit Reporting Act and the Fair Debt Collection Practices Act. In short: regardless of fault, no one has the legal right to collect on an “ancient” debt. Any activity or claim to the contrary may constitute fraud. Consider sending a “cease and desist” letter to any debt collector you know is in the wrong; this puts them in the position of outlining the legal action they plan to take against you. In the case of real “zombie debt”, the only safe answer for them is “none.”

Have zombies lurking around your credit report?
Share you zombie stories and zombie fighting tips.

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