Have you received any recent phone calls or collection notices in the mail, claiming that a very old debt was never paid? This has become so common that a name has been created for it – "zombie debt." The name helps to identify debt that has been "raised from the dead," so to speak. It could be something you never owed at all.
When a person doesn't pay a debt, the lender will take action – by phone, letter, or even a court case – to collect the money they are owed. In some cases, though, the debtor simply can't pay or can't be found. In other cases, the debtor files for bankruptcy and, depending on the kind of debt owed, the debt may be put on hold, renegotiated or discharged completely.
Sometimes, this old debt comes back to life. Some of the most common scenarios of zombie debt are the following:
* Unpaid debts that are beyond the statute of limitations when you can be taken to court for payment
* Unpaid debts you owe but forgot about
* Unpaid debts wiped out with bankruptcy
* Debts you already settled with the creditor
* Fraudulent charges from identity theft
* Fake debts that "creditors" claim you owe as part of a scam
How does debt come back to life?
Creditors often remove old debt from their ledgers and sell it to third-party collectors. In some cases, the debts are legitimate, but in other cases they aren't. When debts are sold and re-sold, the records may be incomplete or inaccurate. Think of it as a game of "telephone." The more times a debt is passed around, the more chance that the related information is wrong.
When debt collectors call
The legal treatment of old debt will depend on where you live and the type of debt in question. Depending on the law, debt collectors are not allowed to sue for old debt if the statute of limitations has expired. They are still allowed to contact you and ask to pay off the old debt. In Georgia and Tennessee, the statute of limitations on most debt is six years.
However, if you start to make payments or acknowledge the debt in some way, the action may restore the collection agency's legal right to take the matter to court. Never agree to make a payment on a debt you aren't sure about until you've had time to research it - even if the collection agency puts pressure for payment.
The best way to start is by doing a thorough investigation. Search through old records to find bank statements and notices of payment. Gather as many facts as possible about the debt in question. Next, within 35 days of initial contact and without acknowledging the debt is yours, ask the creditor for a debt validation letter. The Fair Debt Collection Practices Act (FDCPA) requires the debt collection agency to provide you with written proof of the debt's validity or a judgement against you, as well as the name and address of the original creditor if the debt was resold. Once this information is gathered, determine if the debt is really yours and if it still needs to be paid.
If you determine the debt was yours, but you already paid it, write a letter to the collections agency and demand that they cease contact. Include proof of payment if available. The collections agency is legally required to stop contacting you under the FDCPA.
If you determine the debt is not yours or is invalid, write a letter challenging its validity and where applicable, include any proof you may have.
If you determine you do owe the funds and you can pay the debt, resolve the issue by first getting a payment agreement in writing and then eliminating your unresolved debt.
If you determine you do owe the funds, but you can't pay the debt, you're encouraged to seek out credit counseling through an accredited agency.
When deciding what route to take, keep in mind that once a debt is past the statute of limitations, collectors can no longer sue you to get payment. In addition, the FDCPA stipulates that any unpaid debts should be removed from a person's credit score after seven years. If you decide to begin paying or pay in full an old debt, it could restart the statute of limitations and affect your credit.
Letter templates are available from the Consumer Financial Protection Bureau. If you need to contact a collection agency to dispute a debt, request a debt validation letter or to ask the collection agency to cease contact, you can use templates on Consumer.gov.
Take advantage of BBB's free shredding events to safely shred & dispose of old bills and other documents that are no longer needed. Your BBB partners with local companies and agencies to co-host these events twice a year. The next one is this Saturday, October 30th at Metro Tab Church, Church 2101 Shepherd Rd (Intersection of Shepherd & Hwy 153).
In addition to free document shredding, you can take advantage of free hard drive destruction and recycle electronics including computers, laptops, and flat screen monitors. Law enforcement representatives will also be on hand to take back unneeded prescription medicines.
The event runs from 9 a.m. until noon, however, the document shredding will end earlier if the trucks fill up, so we encourage you to arrive during the first hour. We are in the process of planning more shredding events for April 2022.
For more information, please visit bbb.org/chattanooga or call 423-266-6144.
Michele Mason is president of the Better Business Bureau of Southeast Tennessee and Northwest Georgia