Reports of debt collectors trying to collect on debt that is very old or even no longer owed -- called "zombie" debt -- have been on the rise in recent years. These collectors (often called debt scavengers) purchase large amounts of old debt for pennies on the dollar, and then begin hounding the consumer to pay up.
Zombie debt and debt scavengers can be intimidating to unsuspecting consumers. Collectors use tactics to scare or trick people into paying these debts, often when the consumer no longer has any legal obligation to pay them.
So how can you avoid harassment by debt scavengers? Start by understanding what zombie debt is and how to spot common tactics used by debt scavengers. Then take steps to protect yourself. Here's how.
The term "zombie debt" is used to describe debt that is very old or no longer owed. In short, it's debt that has come back from the dead to haunt you. Zombie debt is typically purchased from the original creditor (or even from another debt collection agency) for pennies on the dollar. The debt collectors, who are "scavenging" for debt, then try to get the consumer to pay the debt.
Lately, the incidence of debt scavenging has risen dramatically. Both established Wall Street investors and fly-by-night debt collection companies have bought delinquent debt in bulk. The older and less collectible the debt, the cheaper it is to buy -- scavengers often pay less than a penny for every dollar of debt. So, these collectors can make money by collecting even a small portion of the debt.
Debt scavengers revive all kinds of debt in the hope of collecting at least part of it. Types of debt typically found in a debt scavenger's portfolio include:
Debts where the statute of limitations has run. A creditor or debt collector has a limited number of years during which it can sue you for an unpaid debt -- a time period called the statute of limitations. The statute of limitations varies by state and according to the type of debt. (To learn more about the statute of limitations and how to find the time limit for your debt, see Nolo's articles Time-Barred Debts: When Collectors Cannot Sue You for Unpaid Debts and Chart: Statutes of Limitations in All 50 States.) Debt scavengers buy debts in which the statute of limitations has run, hoping that they can persuade (or trick) you into paying voluntarily.
Debt that isn't yours. Some zombie debt is simply not yours -- it might belong to someone with a similar name or could be the result of a creditor mistake (mistakes do happen, especially in this day of electronic databases). Some zombie debts are the result of identity theft. And, in some cases, debt that has been wiped from your credit record is sold to another debt collector that tries to bring it back to life and collect on it once again.
Debt that has been discharged in bankruptcy. Sometimes debt scavengers pursue debts that were legitimately discharged in bankruptcy.
Zombie debt collectors and debt scavengers often use illegal or questionable tactics to get consumers to pay old debts. Often, the goal is to trick the consumer into making a payment on a debt for which the statute of limitations has run. By making a payment -- no matter how small -- the consumer resets the statute of limitations on the debt and that lets the collector sue to collect the entire debt. This is why zombie debt collectors work hard to get you to pay a portion of the debt. Here are some examples of how they do this.
Promise to leave you alone in exchange for a small payment. Zombie debt collectors promise to back off if you pay a portion of the debt. Of course, once you make a payment and reset the statute of limitations, you can be sure the collector will come after you for the full amount. Or, if you never owed the debt in the first place, a payment could be construed as an admission that the debt is, in fact, yours.
Promise not to report the debt on your credit report. If a creditor charges off or sends your delinquent debt to a collection agency, that debt can remain on your credit report for seven years plus 180 days from the date of your delinquency. If you haven't made a payment on your debt for years, but the seven-and-a half-year period hasn't expired, it's likely that the debt still appears on your credit report anyway. If the period has passed, the debt collector cannot now report the debt as newly delinquent in order to get it onto your credit report. (Unfortunately, some debt collectors do report old debts as new delinquencies. See "Re-age debts on credit reports," below.)
Sue or threaten to sue. This is illegal if the debt is time-barred. But many frightened consumers don't know this, and so they pay up.
Re-age debts on credit reports. There are limits on how long credit bureaus may continue reporting negative items on a credit report. For most items, this limit is seven years. But some zombie debt collectors report old debt as new so that it pops up on a credit report again. This tactic is illegal. For tips on what to do if this happens to you, see Debt Buyers & Your Credit Report.
Verbally abuse or harass consumers. Zombie debt collectors often engage in harassing behavior -- including use of abusive or offensive language -- in violation of the federal Fair Debt Collection Practices Act (FDCPA). This can lead harried and scared consumers to pay up just to get the collector to leave them alone. (To learn about the FDCPA, see Nolo's article What to Do If a Bill Collector Crosses the Line.)
Represent themselves as a "litigation firm." More often than not, zombie debt collectors are not lawyers, nor do they work for law firms. But many debt scavengers lie in order to scare consumers into believing that a lawsuit is just around the corner if they don't pay up.
If a collector contacts you regarding a debt that's old or that you don't think you owe, you can protect yourself by taking the following steps:
Don't talk to them. If you are contacted by telephone, hang up. You don't want to inadvertently provide the collector with useful collection information -- or worse, say something that reaffirms the debt. All communication should be done through the mail.
Request validation. You have the right to request verification of the debt from the collector. You can make this request in a letter sent via certified mail within 35 days of the initial contact by the collector. The collector must respond with documents showing 1) that you owe the debt, 2) the amount of the debt, and 3) that the collector is authorized to collect it.
Research the company. Before you hang up the phone, get a company name and address from the collector. Then investigate the company online. You may find out that the company is not a law firm (as it might assert) or that hundreds of other consumers have complained about its debt collection practices in the past.
Don't revive the debt. Whatever you do, don't admit (verbally or in writing) that you owe the debt, and don't make any payments towards the debt until you figure out whether it's actually yours -- and whether the statute of limitations has run. If you make even a small "good faith" payment, you may revive the debt and reset the statute of limitations. If the statute of limitations has run, the collector cannot use the courts or other judicial enforcement procedures to collect the debt.
Don't ignore a lawsuit. If you receive a summons and complaint, don't ignore it. Get independent contact information for the court in which it is filed (don't use the contact information on the lawsuit -- if it's a bogus lawsuit, the number will be bogus too) and find out if the lawsuit is real. Act quickly. If you have been sued for the debt, you have a limited period of time in which to respond. If you fail to respond, you could forfeit your right to fight the lawsuit.
Know your rights. Again, the FDCPA governs what debt collectors can and cannot do. Become familiar with the law and your rights under the FDCPA.
Tell the collector to stop contacting you. Under the FDCPA, if you send a letter requesting that a collector cease all communication with you, it must do so. There are exceptions to this no-contact rule. The collector can get in touch in order to notify you that it is ending its collection efforts or to tell you that it intends to sue you.
Watch your credit report. Check all three of your credit reports regularly to see if a zombie debt collector has illegally reported an old debt to a credit bureau.