Zombie Debt - Old Debt May Rise Again from the Dead

Posted: 16 Feb 2008 | Categories: Debt Relief

Now that you have battled and defeated your bad debt, you may think that you’re in the safe zone, right?

Well, think again.

Collection agencies have been in the business of purchasing old debt from creditors for pennies on the dollar.

They in turn contact the debtor and offer to settle the account for less than what is due. Settlements are usually about seventy percent of the balance.

Since the collection agency only paid ten to thirty percent or ten cents to thirty cents on the dollar for the debt, you can see how the money starts to roll in for the collection agency. It’s big business.

It’s also quite legal.

Here is where you need to be concerned.

If you have successfully removed bad debt from your credit report by either paying in full or agreeing to settle the account with the original creditor, the creditor may not have completely purged your information from their database.

This could result in your file being mixed in with all the rest of the bad files when a sale is made to a collection agency.

This could revive the old debt that you believed to be dead.

Hence the term Zombie Debt.

If you have filed bankruptcy, have been a victim of identity theft or have successfully disputed bad debt off of your credit report, the chances of experiencing a revival of old debt may be significant.

Though collection agencies cannot legally collect on debts included in a bankruptcy, some agencies may not be aware of the bankruptcy, which is removed from credit reports after seven or ten years.

If you have dramatically improved your credit record, you could very well be targeted by a collection agency because you are more prone to want to maintain the good credit you have worked so hard to repair.

As a consumer, if you inform a collection agency that the debt is due to identity theft, the agency must investigate that claim.

Debt that has been successfully disputed with one agency may be sold to another agency and the dispute process has to begin all over again.

Sometimes debt is sold so quickly, and the process is so unregulated, that there is essentially no way to stop the collection letters or the reporting of the bad debt to the credit reporting agencies.

As a consumer, you do have some protection.

“First, six years after a debt goes into default, the collector can no longer sue to collect

“Second, after seven years, the debt can’t be shown on a consumer’s credit report

Efforts to collect old debt are legal, as long as the collector doesn’t threaten to sue or report the debt to a credit reporting agency.

In reality, a debt that is legally due never dies. However, the collection agencies are limited as to what actions they can take against a consumer to get them to pay.

Take caution. If you should receive a collection letter on an account that has been removed from your credit report and is past the statute of limitations, send the collection agency a letter and request that they cease and desist any and all communications.

DO NOT agree to send any type of payment or to settle the account. The law is unclear but a case might be made that by making even a small payment towards the old debt or verbally acknowledging the old debt, the statute of limitations may start all over again, which could allow the agency to threaten a lawsuit.

Carlos D Cruz
ccruz@debtcreditlearningcenter.com
http://www.DebtCreditLearningCenter.com

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Article Author :Carlos_D_Cruz