Deal with Zombie Debt
Unfortunately, collecting old debts -- even debts for which you are not legally responsible -- is becoming a very profitable venture. Companies can buy those debts (sometimes referred to as "junk debt") for pennies to the dollar, then go after the people who they think are most likely to pay up. A phone call can turn into badgering, harassment, threats to sue, and other inappropriate (and sometimes illegal) actions. If you ever get a collector asking you to pay up on a debt that's "come back to life", you need to do everything you can to make sure your rights aren't violated.
Steps
- Do not acknowledge the debt. If you're not sure whether you actually owe the debt, don't say anything that could indicate that the debt is yours, and certainly do not agree to make any kind of payment. Doing this can give the company the legal right to collect the debt, which they might not have had if you didn't acknowledge the debt.
- Don't fall for any traps.
- illegally "re-aging" debts (reporting the old debt to the credit bureaus as if it's new)
- promising to wipe off a red checkmark on a credit report
- bait-and-switch credit card offers (they tack on the balance of the zombie debt)
- Get it in writing. Ask for proof that you owe the debt, like the credit card agreement you originally signed, along with an account history. If they don't have that proof then they don't have the right to take action against you. Again, make sure you don't acknowledge the debt. Keep repeating: "I want to see evidence of this debt in writing. I do not acknowledge this debt."
- Check the statute of limitations to make sure you're not responsible for the debt anymore. The statute of limitations essentially defines how much time you can go without paying a debt before a collector's right to collect through the court system expires. Every state in the US has different rules and exceptions regarding when the time period officially begins, how long it lasts, and what can "revive" the statutory period, so you really do need to check the laws or consult an attorney in your own state. Until you can do that, however, keep the following in mind:
- Even if the statute of limitation expired, agencies can still try to collect the debt; they just can't do it through the court system. (If your debt was discharged through bankruptcy, they can't attempt to collect it at all.)
- Moving to a different state, even temporarily, can affect the length of your statutory period.
- Do not allow the collector to convince you to make a payment to "show your good intentions" (such as if you're on your way to court). This can "reset" the statutory period and essentially bring the debt back from the dead.
- If the statute of limitations has expired, and you don't meet the criteria in your state for extending it, send a letter to the collectors stating those facts.
- Write a letter explaining that you are not responsible for the debt, you do NOT acknowledge it, and you demand they stop harassing you or you will take legal action. If you've done your homework and you know that you are not responsible for the debt (such as if your statute of limitations expired and you don't meet the criteria in your state for extending it, or you declared bankruptcy), send them a letter through certified mail and get a return receipt. If you've filed for bankruptcy, send them your discharge order with your letter. If they insist on taking you to court, be prepared to tell the judge that you notified the collector in writing that the statute had expired.
- Watch your credit report carefully. They might try to report the debt or taint your credit history. As mentioned earlier, collectors could post an old debt as if it's new, or lie about the date of delinquency (in an attempt to start a new statutory period). Dispute any questionable entries with the credit bureau and the agency. Again, asking for proof of the debt as advised earlier can make their claims invalid.
Tips
- Understand your rights under the Fair Debt Collection Practices Act. Know that it is prohibited for collection agencies to harass you, to call you early in the morning or late at night, or to continue contacting you once you have expressed in writing that you do not wish them to contact you (except to indicate an intention to seek legal remedies or that they will cease contact with you).
- If you are responsible for the debt, that is, if the statute of limitations has not run out, negotiate carefully.
- Never give a collection agency your banking information. If they have that information, they can withdraw the amount you owe from your bank account and you will have no recourse against them.
- Cherish your integrity and morality, but do not allow yourself to be manipulated into a strategic mistake. The junk-debt business (and the financial system at large) is built around profit, and gives no thought to integrity or morality. In fact, paying off the debt renews the bad marks on your credit reports! This is an unintended flaw in the credit reporting system. The collectors know this, don't care, and aim to wreck your FICO score for a few dollars. You are better off paying the money to a church or charity, and hang up on the collector.
Warnings
- Always consult an attorney if you have any questions or are uncertain about the laws regarding your debt.
- Settling for less than the full amount is not much of a deal. The part forgiven is reported to the IRS, on a Form 1099. You will owe income tax on this amount, unless you can show (under IRS rules) you were insolvent.
- Making a payment, even a small "good faith" payment can restart the statute of limitations on your debt, or restart the collections process if the statute has already expired.
- Do not ignore a court summons, even if you think the statute of limitations has expired. Get an attorney. If you don't show up in court the judge is likely to accept all of the allegations against you as facts and give your creditors or the collection agency whatever they ask for. It's called default judgment and may be enforceable whether the debt was legitimate or not.
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