Zombie Debt: Just As Scary as Real Zombies
Zombie debt is debt that will not die, or keeps coming back from the dead. This term is used in the credit industry to describe debt that resurfaces in collections after the statute of limitations (legal time limit to collect the debt) has expired. With collection agencies still attempting to collect the debt, it can reappear on your credit report and negatively impact your purchasing power.
Where Does Zombie Debt Come From?
In the past, most creditors did not believe that debts beyond a certain age were worth pursuing. Today, some debt buying companies buy up old debts for pennies on the dollar then proceed to harass debtors to get them to pay, even if they are no longer legally obligated to do so. Like every other state, Arizona has statute of limitation laws setting a timeframe within which a creditor must sue, or the claim will be forever barred. In Arizona, if you have entered into a written contract, creditors have six years from the date when you began missing payments to sue you. For example, the statute of limitations for credit card debt is six years.
Debt collection companies may call debtors after the statute of limitations has run, threatening legal action, in possible violation of the federal Fair Debt Collection Practices Act. They may convince debtors to make small payments to ward off a lawsuit and/or to stop the collection calls. Once the debtor makes a payment, the statute of limitations begins to run from that point, and the debt is revived. The creditor can sue for the entire amount.
What Types of Debt Can Qualify as Zombie Debt?
Zombie debt collectors will try to collect on different types of debt, including:
- Time-barred debt: If the statute of limitations has expired, the creditor cannot sue you.
- Discharged or settled debt: Debts can be discharged in Chapter 7 bankruptcy or settled through a written agreement with the creditor. In either case, you are no longer legally responsible for the debt.
- Debt that has fallen off your credit reports: A debt collector can report a negative item, such as a late payment or collection, to the credit bureaus for up to seven years. If a debt collector convinces you to make a payment on a zombie debt, it can restart the seven-year clock on credit bureau reporting.
- Debt that is not yours: A mistaken debt collection company could harass you for payment on a debt that does not belong to you. A hacker could steal your identity and make fraudulent charges in your name. Report identity theft immediately and notify your bank and creditors.
How Does Zombie Debt Affect Your Finances?
Zombie debt is old debt that comes back to haunt you. It should be dead, but it is still living on your credit report. If you legitimately owe a debt that is still collectible, you could be facing collection actions, such as wage garnishment or a levy. If the debt is no longer collectible, it can still lower your credit score, making it difficult for you to get new credit.
What Can Be Done About Zombie Debt?
Our Phoenix bankruptcy and debt settlement lawyers at Hilltop Law Firm can help defend you against debt collectors and zombie debt. We offer a range of debt relief services, including bankruptcy, debt settlement, and credit repair, and we can recommend the best option for you. Founding attorney, Cy T. Hainey, has extensive experience in bankruptcy, consumer, debt relief, and estate planning law. Combined with a background in banking and finance, this makes him a powerful advocate for our clients.
If you are being tortured by Zombie debt, we can help you finally kill it. Contact our firm at (602) 466-9631.