A Guide to Navigating Zombie Debt and Your Legal Rights

The zombies (AKA debt collectors) are coming! Not for your flesh, but for your money.

The zombies are debt collectors. They’re after zombie debt, which is old debt you no longer must pay, but collectors are bloodthirsty enough to pursue.

It can turn into a financial horror movie, but consumers have protection that can keep the zombies from feasting on your bank account.

What Is Zombie Debt?

Zombie debt is old debt that you are no longer legally obligated to pay, but unscrupulous collectors try to bring it back to life by hassling, threatening, and trying to dupe consumers into forking over money.

Unfortunately, the trickery works. It’s impossible to know how much zombie debt is collected annually, but a Receivables Management Association estimates it’s “tens of billions of dollars.”

Zombie debt comes in a variety of forms. There are discharged debts, which were settled for less than the full amount or erased through bankruptcy.

There are zombie mortgages, which are mortgages that were refinanced or modified in other ways. Millions of such loans were written off by banks following the 2008 housing crash, and consumers have forgotten about them. Homeowners may still be legally liable, but not if the statute of limitations on collecting it has passed. That time limit varies from state to state but generally is in the 3-6 year range.

There are identity theft debts, which aren’t even yours. But debt collectors may think they belong to you.

There are debts that have fallen off your credit report, like credit card or medical bills.

Where does this zombie apocalypse originate?

Consumers decide they can’t pay creditors. Creditors give up trying to get their money and write off those debts. But just so it won’t be a total loss, they sell the debt to collection agencies for pennies on the dollar.

Then, whether you are legally obligated to pay the debt or not, the collection agency will start stalking you.

Understanding Time-Barred Debt

Time-barred debt is money you owed but not paid, like overdue credit card bills. But it is not “collectable.” After a set period (again, usually 3-6 years), the creditor can no longer sue you to get the money back.

The official term for that period is “statute of limitation.” It may have expired on your debt, but beware. Like Lazarus, it can be resurrected.

If you formally acknowledge the debt in writing or make even the smallest payment on it, the statute of limitation restarts. The debt can once again be legally collected by suing you through the courts.

Zombie Debt Statute of Limitations by State

The statute of limitations on debt collectors filing lawsuits varies. It all depends on the type of contract (oral vs. written) and the law in particular states.

The statute of limitations on written contracts is six years in Alabama. In Wyoming, it’s eight. For the 48 states alphabetically in between, it varies from three to 10 years.

Contact the consumer protection agency in your state to find out the statute of limitations that applies to you. Agency information is available at usa.gov/state-consumer.

How Zombie Debt Collection Works

Zombies are not conscious, meaning they are brain-dead and driven by predatory instincts. Debt collectors are usually conscious, but otherwise remarkably like zombies.

They will call you relentlessly, contact you through social media, fudge facts or spout borderline truths about amounts you supposedly owe and what will happen if you don’t pay.

They will pretend they are law firms and tell you that you’re going to jail if you don’t pay. They will do practically anything, if that leads to a payday.

Any debt-riddled consumer can be a target of such harassment, but debt collectors really prey on the vulnerable. Low-income and elderly or disabled people are often unaware of their consumer rights and especially fearful their credit or basic well-being will be damaged if they don’t pay up.

Common Red Flags

There are telltale signs that your debt is zombified and the collection agency is blowing smoke.

• It is more than seven years old. Negative information like late payments, charge-offs and debt settlement generally falls off your credit report seven years after the original delinquency date.
• The debt collection agency threatens to sue or garnish your wages.
• The debt collection agency admits it won’t sue. Some states require collectors to disclose in writing that they are not allowed to take legal action if debts are time-barred.
• The debt is past your state’s statute of limitations.

Your Rights Under the Fair Debt Collection Practices Act (FDCPA)

You are not helpless when zombie debt starts stalking you. The Fair Debt Collection Practices Act (FDCPA) offers a variety of protections against creditor harassment.

A key one is debt validation. After the first contact with you, collectors have five days to send you a written notice that specifies the amount you owe, the original creditor and instructions on how to dispute the debt.

You can also write to the collection agency and instruct it to stop contacting you. At that point, it will only be allowed to notify you if it plans to take legal action.

Collectors are also not allowed to contact you before 8 a.m. or after 9 p.m. local time. They cannot call your workplace if they know your employer does not allow it.

Collectors are prohibited from garnishing your wages, using obscene language, threatening you with violence or arrest, and discussing your debt with anyone except you, your spouse and your attorney.

How to Handle a Zombie Debt Collectors

The best way to deal with zombie debt collectors is resist the urge to get angry about it and instead, follow these steps:

• Keep quiet. Never admit to the debt or discuss the balance or agree to a payment plan. That could restart the statute of limitations clock and allow the collector to sue you.
• Send a debt validation letter via registered mail. The collection agency is legally required to tell you the amount you owe, the name of the original creditor and show proof that it owns the debt.
• Check the statute of limitations. If it has expired, the collector won’t have a legal leg to stand on, and you can walk away.
• Check your credit reports with the three major credit bureaus (Equifax, Experian, TransUnion). Make sure that expired debt isn’t still being reported as active, and that you aren’t the victim of identity theft. If you think the debt is fraudulent, file a dispute with the credit bureau.
• Get legal help if the collector threatens to sue you. Consult with a consumer rights attorney to review your options. If the collector takes you to court and loses, the collector must pay your legal bills.
• Address the root of the problem. The surest way to avoid zombie debt is to not get in debt in the first place.

If you’re struggling to do that, a little help might help. Nonprofits like InCharge Debt Solutions have certified credit counselors who will devise a plan that could get you out of debt.

That would sure beat getting chased around by financial zombies.