Does this scenario sound familiar? You can’t afford to keep up with a bill, so you stop paying. Your lender calls several times about the delinquency, but you ignore them. Your debt is eventually charged off. A few years go by and you’ve forgotten all about the debt. Suddenly, you start receiving blocked phone calls and mysterious letters. You feel uneasy and suspect someone is keeping tabs on you.
Brace yourself: A zombie debt apocalypse is drawing near. Chances are a collector is trying to resurrect your old debt from the grave. Some collectors are so intent on collecting that they’ll buy your old account from the original lender and attempt to start the collections process all over again.
Debt collectors are in hot pursuit of the more than 35% of Americans who have unpaid debts, according to an Urban Institute study. Total U.S. household debt is close to $12 trillion, so it’s no surprise some of these debts go uncollected. What you might not know is that in some cases you may not have to pay the debt. However, some collectors will try to trick you into paying a debt that’s so old it not only dropped off your credit report, but you’re not even liable anymore.
If you take the following steps, you’ll be able to send this zombie debt back to its underworld.
1. Find out whether you’re required to pay the debt
You are not legally obligated to pay a debt once it reaches the statute of limitations. This is the amount of time a debt collector or lender has to sue you for payment. These types of debts are called “time-barred.” This doesn’t mean your debt is cancelled, it just means legal action cannot be taken to recover the debt. But don’t get too excited. This doesn’t apply to federal student loans because they have no collection limit; you can be sued at any time. The statute of limitations depends on your state of residence and the type of debt owed, but it could be from two to 15 years. Credit Infocenter has a detailed list of each state’s statute of limitations. Also check with your state’s attorney general.
2. Don’t automatically claim ownership
Telling a debt collector you’re responsible for the account will reset the statute of limitations. Your best bet is to decline a discussion about the debt until you gather more information.
3. Reject a payment plan
Agreeing to make a payment on a time-barred debt is known as re-aging. This will also restart the clock and make you vulnerable to a lawsuit. Even if you make a payment that’s not part of a payment plan, it will have the same result. “Debt collectors sometimes ask their debtors to make ‘good faith payments’ of a small amount, such as $10 or $20. But the consumer has just unknowingly restarted the clock and could possibly be sued for the remainder of the debt,” says John Ulzheimer, President of Consumer Education at SmartCredit.com.
4. Don’t sign anything
You might get a letter from the collections agency requesting that you check a box telling them if you want to pay now, later, or if you cannot pay. This is a sneaky tactic to get you to confirm an old account and restart the statute of limitations. If this happens to you, send a certified letter stating the debt is time-barred and you would like them to cease debt-recovery efforts.
5. Order your credit report
Your report lists the most recent activity on your accounts. If you’re ever sued by a collector who says the account is still active, you can use your credit report to verify that the statute of limitations on the debt has expired. You’re entitled to one free credit report from each of the three major bureaus each year. Visit AnnualCreditReport.com to get your copy.