‘Zombie Debt’: How Collection Agencies Trick You Into Reviving Debts That Could’ve Been Written Off

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Written by Dana Sanchez
zombie debt
The walking debt. Photo: Tom Woodward / Flickr

You can be tricked into paying off an old debt that could have been written off.

The $11-billion debt-collection industry is accelerating efforts to profit from debts that the financial industry once wrote off — a practice that could pay off as consumer debt reaches record levels.

Americans are more than $4 trillion in debt, and debt collectors can resurrect “tens of billions of dollars” each year by getting you to reset the statute of limitations on your debt, the Washington Post, reported.

It’s called zombie debt because it’s old. All consumer debts, from credit card balances to medical bills, have limits on the number of years creditors have a legal right to sue you for payment, according to NerdWallet.

In some states, the statute of limitations for credit card debt is three years. In others, it’s up to 10 years. The rules can vary from state to state. In 22 states, for example, the statute of limitations on private student loans is six years.

But there’s a catch. If the consumer makes a payment, even against his or her own will, that can be used to try to revive the life of the debt.

A debt collector sued Terrie Raymer for debt that was beyond the statute of limitations. The debt collector successfully garnished 19 cents from her checking account. Raymer challenged it and the debt collector dropped the lawsuit, then sued again, saying the 19-cent payment had revived the debt.

Consumers are often incentivized to make a payment on an old debt. Debt collectors might give them a new credit card to pay off the old debt or promise the debt collection calls will stop if they make a small payment.

Debt collectors are counting on you not reading or understanding the fine print when you make a payment that can revive an old debt.

“Consumers just don’t know the ins and outs of state and federal debt-collection laws and probably will not understand the consequences,” said Christine Hines, legislative director of the National Association of Consumer Advocates. Her organization lobbied to ban debt collection beyond their statutes of limitations.

The clock on the statute of limitations starts when an account goes delinquent, typically 30 days after you miss a payment, writes NerdWallet’s Sean Pyles.

Be careful when you talk with collectors, Pyles said. Don’t promise anything. Debt collectors are notorious for trying to collect debts from the wrong people. Original creditors sometimes sell debts to third parties and it’s possible for the debts to get sold again after that. Debt collectors “will likely have less and less complete information,” Pyles wrote. “As a result, you may be contacted to pay a debt that’s not yours at all.”

Instead of answering questions from debt collectors, be the to ask the questions.

Pyles gives some tips to avoid being tricked into paying off an old debt that could have been written off:

Ask the debt collector two simple questions:

  • Is the debt time-barred?
  • When was the date of the last payment?

Debt collectors don’t have to answer the first question. If they do, they have to tell the truth. If a debt collector won’t give you any information, ask for a debt validation letter. A collector must send you this letter within five days of first contact. That letter should include the amount owed, the date of the last payment, the name of the collector and how to request information on the original creditor.