As we begin work for the 4th year in a row to curb usurious payday lending in Rhode Island, we have to be aware that other predatory financial products are always materializing. One of the newest practices of leaching money out of hard working people is called “Zombie Debt”. It is appropriately called that because this is literally debt that comes back to life. In certain instances, debts can be expired or defaulted by bankruptcy, settlements, or other negotiations. Some debts may even be inherited with estates and then forgiven by the creditor.
According to a National Consumer Law Center‘s January press release, “more than 1 in 3 adults with credit reports have debt in collections, according to a 2014 report by the Urban Institute, and many of these debts are quite old. A 2013 study by the Federal Trade Commission (FTC) found that more than 30 percent of the debt purchased by the nation’s largest debt buyers from other debt buyers was over six years old.”
In Rhode Island, any debt over ten years old (including written or oral contracts, promissory notes, and open-ended accounts such as credit cards) is past the legal statutes of limitations, meaning the debt collectors cannot sue you for that debt. Creditors sell off their debts though – even those that are not legally collectible – to collection agencies for pennies on the dollar. Years later, beyond the legal time limit to collect debts, the new debt “owners” contact people connected to the debt and try to negotiate a payment or a payment plan, often by using intimidating or abusive tactics. Here is where the problem begins: if a person pays anything to that collection agency, the debit is now “alive” and will appear on that person’s credit report, becoming a legal liability once again.
What to do if Zombie Debt comes back for you
- Don’t spend any time with someone on the phone. If they call, just ask for the debt collection company’s address and instead send them a letter (see step 4).
- Contact our HomeOwnership Center for assistance in responding to the debt collectors and protecting your credit score.
- Never acknowledge that the debt is yours. Any hint otherwise allows them to use it as evidence against you.
- If they send you a letter, keep it.
- Send a certified letter to the debt collection company within 35 days of their contact. Dispute that you owe the debt and ask them to prove that you do owe it.
- Don’t contact or talk to the collector for any reason until you receive written proof of the debt’s validity or a judgement against you, as well as the name and address of the original creditor if the debt was resold. The Fair Debt Collection Practices Act (FDCPA) requires the debt collection agency to provide you with all of this information.
Once you receive the information about the debt, you’ll be able to determine if the statute of limitations has passed or if it’s even your debt at all. In some cases, zombie debt can be the result of identity theft, computer error, or a fraudulent attempt to get money from you for a debt that doesn’t exist. If the debt was part of a bankruptcy that you filed (and therefore should have been forgiven), the original lender may not have received the discharge order or improperly processed it. You can get a copy of the discharge order from the bankruptcy court and send it to them again.
While the National Consumer Law Center works nationally to outlaw zombie debt, we are working at the local level to prevent this and other predatory practices from affecting hard working Rhode Islanders (to learn more visit our Advocacy page). If you or someone you know is contacted by a collection agency to collect on old debt, please contact our HomeOwnership Center. Our team of experienced advocates and coaches can help you move forward without bringing that debt back to life.