Nikki Waller, Director of Financial & Relational Development
Slaying Zombie Debt
You may be looking for something along the lines of ghouls and goblins this Halloween then get an unexpected bite from zombie debt.
Zombie debt is an old debt that you thought was gone but a debt collector has revived and is asking you to pay. Much like the zombies on TV, this type of zombie is also hard to get rid of. It’s literally back from the debt graveyard.
Your first step in slaying this Zombie is to know where it came from. This debt can be:
Debts you’ve settled. This could have been through bankruptcy or that you’ve already settled with a lender.
Debt past the statue of limitations. Yes, if you borrow money and don’t repay it, collectors aren’t allowed to sue you after a period of time. What’s the statute of limitations in your state? Well, we’re glad you asked…
Debts that have fallen off your credit report. After seven years, unpaid and negative debts fall off your credit report. Unfortunately this doesn’t mean the debt is past its statute of limitations and is forgiven. However, making a payment on this debt resets the clock on statute of limitations and will put it back on your credit report.
Identity theft. Collectors get people wrong all the time and you are not liable in any way if you never spent the money. Debt collectors break federal law on a daily basis, so don’t be bullied by them.
Okay, so what do you do?
Rule 1: Don’t pay until you know it’s yours. Making one payment on an old debt tells debt collectors two things:
It’s yours (even if it’s not yours)
You want to pay it back
Make sure to get your facts straight before making any type of payment. Go through records to verify what the debt is and proof of payment. Request a debt validation letter from the collector to get the details on the original lender, the amount of debt, and how you challenge it. Don’t pay even a dime on a high-pressure phone call until you’re sure the debt is yours. Making any type of payment is you acknowledging the debt is yours and resets the clock on the statute of limitations.
Once you know your enemy, plan and attack.
If you’ve paid the debt, write a letter to the collections agency demanding they cease contact. Here are some great sample letters to help you get started.
If you can pay the debt, get any payment agreement in writing before sending any money. You can do this in three ways: setup a payment plan, pay in a lump sum, or settle the debt for less than you owe. (The last one sounds nifty, standby for next weeks blog to learn more)
If you do owe the debt and can’t pay, talk with a financial coach to help weigh your options.
No matter what, don’t ignore the debt. The problem won’t go away if you ignore it. You need to be proactive to get zombie debt killed once and for all.
Don’t let them threaten or harass you or your friends. Debt collectors must follow the rules. If you feel as though you’re being harassed by a debt collector, contact the Consumer Financial Protection Bureau or the Federal Trade Commission.
Finally, protect yourself in the future by knowing your credit report. There are several reasons for checking your credit report, and it is your right to do so once a year. You can learn more about this at Fair Shot.