Zombie Debt: What Is It and How Do You Kill It for Good?

Let’s say that eight years ago, you ran into some financial trouble. Maybe you had to declare bankruptcy after a big investment soured, or maybe some stranger got ahold of your personal info and ran up a bunch of credit cards. Whatever the problem, you resolved it ages ago. Since then you’ve been careful, making all your payments on time and slowly rebuilding your credit, point by point. Then, out of nowhere, you get a phone call from a collection agency. They say you still owe money. What’s going on? Well, you’ve just had a run in with zombie debt.

Okay, so what does that mean?

For pennies on the dollar, collection agencies can buy your debt from companies or banks that have already written the debt off as a loss. It doesn’t matter if you’ve already been freed of the debt via bankruptcy proceedings, the statute of limitations, or even if the debt is due to identity theft or mistaken identity. As long as it’s unpaid, collection agencies are allowed to try to talk you into coughing up the cash. Of course, that doesn’t actually mean you’re legally obligated to do so.

What do I do next?

When you’re getting phone calls and letters from collection agencies for a debt you’re pretty sure you don’t owe, you need to be careful about how you proceed. First, don’t acknowledge the debt. If you have a complicated financial history, it can be easy to believe that you do actually owe someone somewhere some money. Don’t fall into that trap. In most cases, making just one payment gets you back on the hook for the whole debt, damaging your credit in the process. Stay off the  phone, if possible, and don’t admit to knowledge of the debt. Ask for proof. Before you do anything else, ask for written proof that you owe money. If they can’t provide copies of statements or other documentation, then they can’t expect you to pay. Write a letter. Once you’ve straightened out the situation and done your homework (like checking the statute of limitations in your state), it’s time to put everything in writing. Use a template like this one or write your own. Make sure you send it through certified mail and get a return receipt, so they have no excuse. Keep an eye on your credit. Occasionally, collectors will report the debt to a credit agency anyway, even though you're not responsible for it. This is illegal, and if you notice your credit taking a dive, you should contact the credit agency immediately to file a report. Make sure it never happens again. Paying off your bills on time is really the only way to know for sure that zombie debt won't rear its head again, but keeping good financial records will never hurt you.