Understanding Zombie Debt

How zombie debt is created

When delinquent debt becomes old and goes unpaid for a long period of time, there is a limitation to how long a debt collector can continue using the courts in their effort to collect the debt. That amount of time is known as the statute of limitations, and it varies by state. In most states, the statute of limitations is four years, but some states allow it to continue for six years or longer. Once the statute of limitations runs out, debt collectors are no longer able to bring collection action against a borrower in the court system. This removes most of the leverage held by debt collectors trying to collect money from delinquent borrowers.

Similarly, unresolved collections can appear on a borrower’s credit report for up to seven years. This is a disadvantage for the borrower because it affects their ability to be approved for other loans, including a mortgage. Once the seven years pass, however, the appearance of bad debt on a credit report is no longer a tool that can be used by debt collectors. 

Debt that falls outside of these timelines is known as zombie debt. Debt collectors are unable to legitimately sue the borrower in court for zombie debt, and it cannot legitimately appear on a credit report due to the time that has lapsed.

Zombie debt communications

By the time delinquent debt can be classified as zombie debt, there are few options left for debt collectors to convince borrowers to repay it. They can continue contacting borrowers by phone and writing to them since the debt doesn’t actually go away, but they do not have any other tools to help them leverage repayment. 

As the borrower, you have a legal right to ask a debt collector to cease all communication with you. If the debt is within the statute of limitations, however, this is not always a good idea. By telling a debt collector not to call or send you mail while you are still able to be sued, the debt collector’s only method of communicating with you is now within the court system. By pushing the debt collector to take legal action against you, the request to cease communication has now backfired. If the debt is beyond the statute of limitations and is now a zombie debt, however, it may be safe to tell debt collectors to stop contacting you. 

The other factor to consider is your credit report. In some cases, the bad debt may be beyond the statute of limitations for legal action yet within the seven years it takes to be removed from your credit report. If unresolved collections are still appearing on your credit report, you may want to refrain from telling debt collectors to stop all communication. If you develop a goal that requires a resolved debt on your credit report or to negotiate a beneficial settlement deal, it will work in your favor to have a positive history with debt collectors and avoid disputes on your credit report that could impede your ability to obtain a loan. 

Once the zombie debt has passed all limitations, you can cease communication with your debt collectors. When you make this request, be sure to do it in writing and by certified mail. This way, you can verify that the debt collectors received the letter and take action if they violate it at any time. 

Paying off zombie debt

While there is no legal obligation to repay zombie debt, some borrowers decide to repay it anyway. In some cases, a borrower who didn’t previously have the means for repayment may be more financially secure now and pay the debt for peace of mind. In this case, be aware that settling or paying zombie debt does not necessarily do anything to repair past damage to a credit report. 

Making payments towards zombie debt can also cause its statute of limitations to reset. For example, if you owe $10,000 of zombie debt and decide to start a repayment plan of $1,000 per month, missing a payment can reopen the door for the debt collector to sue you. The statute of limitations renews because a new arrangement is created, so don’t agree to new terms that might be difficult to fulfill. There are many state-specific rules regarding agreements with debt collectors, so always be cautious and get any agreements in writing. 

If you have issues with zombie debt and need assistance connecting with your creditors, Kredit can help.