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Plan Well, Retire Well

Saving and investing your money

Conquering the apocalypse of zombie debt

We have learned a lot about zombies from the movies. There are ways to keep zombies from eating your brain. Bar the doors, understand and choose your weapons, figure out your escape route. Similar tactics can help you be victorious in standing down the debt apocalypse.

What is Zombie debt?

In short, zombie debt is debt you thought was long gone coming back to haunt you- usually when you are trying to get loans to make big purchases like a car or a house. Sometimes these are called time barred debts, ones whose statute of limitations on their collections have run out. Sometimes they are debts from Identity theft situations that you thought were resolved, or may be old debts that you have settled and paid. Frequently people don't owe the debt or owe less than claimed as each new debt buyer adds interest, processing and attorney fees.

How can this happen?

When an original creditor stops trying to collect a debt, they try to recoup part of the loss by selling uncollectable accounts to a third party debt collector. Often the original creditor sells for pennies on the dollar- the high end being about $0.12 on the dollar to fractions of a cent on the dollar. Most of the time, these accounts are transferred to the new "owner" via spreadsheets with very little or no documentation on the original contract, payments received or the chain of assignment. It's just a stream of numbers -- a name, maybe a Social Security number and an amount of money. These debts are held for a while and frequently bundled again and sold to yet another collector with even less detail.

So what do I do about Zombie debt?

  1. 1. Do not acknowledge or pay anything on the debt until you have gotten all the details of the debt . This can restart the statute of limitations clock on a time barred debt and make it a current liability. It does not affect the time the original debt may appear on your credit report (7 years). However, making even a partial payment without gathering all the details of the debt can open you up to being sued for the entire debt plus court and attorney fees.
  2. 2. Request that any one calling you communicate with you in writing with the details about the alleged debt.
  3. Do not ignore the calls or the mail. Ask callers to stop calling and communicate only by US mail and then open the envelopes when they come. Respond within the time frames stated in the letter as to why you don't owe this debt.
  4. Demand the collector prove: that a contract exists; all assignments of the debt from the original creditor (credit card company etc.); proof that your account is actually included in any assignment; that the debt is not barred by statute of limitations. If they are threatening to sue also demand proof that they are licensed to and have standing to sue. Click here for a sample letter written by the Consumer Financial Protection Bureau (CFPB)
  5. If the debt collector files a lawsuit against you for the debt- don't ignore it-show up in court. By not showing up, a judgment will be filed against you and will appear on your credit report and the debt becomes new and collectable-including court and attorney fees.
  6. When in doubt- Call a lawyer or public aid legal service. They can help if you feel you are in a situation where you may be sued.

The best defense is a good offense.

  1. Pay your bills on time and keep good records. I scan and keep records on the computer to avoid too much paper in the house.
  2. Shred any information that comes to you with your name, personal information and any sort of account number. I shred catalogs that say "You have been pre-approved for credit…." on them to help prevent identity theft. The main hunting ground for Id theft information is still your garbage/recycling.
  3. Call your Creditors first if you have a situation where there are accounts that get behind or debts that are not yours. Do not ignore them but call as soon as possible and make payment plans and stick to them. Creditors prefer to work with you than to sell off to debt collectors.

A debt collector for a debt that I had paid years before once sued me. I no longer had the copy of the check I used to pay the debt after a flooded basement. I went to court anyway and explained my side with only a copy of the letter I sent with the payment I had saved on my computer. The attorney from the debt collector claimed that there should be a judgment against me because I could not prove I had actually paid the debt. But, the attorney had no documentation that I actually still owned the debt. I won. You can too.

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