What Is Zombie Debt and How Can You Kill It?

If a collection agency contacts you about an old debt or a debt you don’t think belongs to you, beware. Depending on what you do next, you could revive a zombie debt.

Zombie debt sounds scary — and it is. Also known as phantom debt, a zombie debt is a debt that you never owed or an old debt that comes back to haunt you when a collection agency contacts you. Often, you’re not obligated to pay these debts and it may be illegal for the collector to be pursuing payment.

Still, if you acknowledge an old debt or make a payment on it, that may be enough to “revive” your obligation and bring it back from the grave.

We will examine what you can do if you are contacted by a debt collector who is trying to pursue an old or fraudulent debt.

What is zombie debt?

Zombie debt often comes back to life when a debt buyer purchases a bundle of delinquent debt from a creditor or another debt scavenger. Often, these bundled debts are sold for much less than the amount owed, so buyers can make a significant profit if they ollect on even a fraction of what they bought.

These bundles sometimes include expired debts that are past the statute of limitations that allows collectors to sue for payment. But, depending on how you respond when a debt collector contacts you about an expired debt, the debt can be legally resuscitated and brought back to life to haunt you — even if they can’t sue. This can happen if you agree to pay even a small amount of an old debt. That payment can restart the clock on your legal obligation to resolve the debt or prolong the time it appears as a negative item on your credit report.

Here are some common types of zombie debt:

• Discharged debt: When you settle a debt with a creditor or declare Chapter 7 bankruptcy (which discharges most debts, including medical debts) you are no longer financially responsible for repayment.

• Time-barred debt: In most states, there is a statute of limitations that sets a maximum amount of time collection agencies have to sue you for a debt. This timeframe is typically between 3 and 6 years. Note that the statute of limitations on suing you for a debt is different from the 7-year lifespan of negative marks on your credit report.

• Debt that has fallen off your credit report: After 7 years, debt that is placed in a collection status may fall off your credit report, but a debt collector still may be able to pursue the debt depending on your state’s statute of limitations.

• Debt that isn’t yours: A debt collector may have your name on a debt that doesn’t belong to you because of a mistake or because you’ve been a victim of identity theft. You also could be targeted for “fake debt” by people trying to fraudulently get money from you. If you discover that your personal information has been stolen, notify all three credit bureaus — Equifax, Experian, and TransUnion — as well as your financial institutions. Also, report the identity theft to the Federal Trade Commission (FTC) and watch your credit reports in case any additional fraudulent accounts appear.

Can a collection agency report an old debt as new?

Debt collection agencies are not allowed to report an old debt as new by changing the date of first delinquency. This is called “debt re-aging” or “account re-aging” and it’s an illegal practice.

Even if you discuss the debt or make a payment on it, the date of the first missed or late payment stays the same.

Can I ignore zombie debt?

Maybe. You may not be able to ignore zombie debt if the debt is actually yours and you still owe an unpaid balance. If you are still legally obligated to pay the debt, see if the debtor is willing to offer a payoff amount that’s lower than what’s owed or payment plan. Keep in mind that you can reset the debt’s 7-year lifespan on your credit report if you start making payments.

If your state’s statute of limitations has passed on the debt, you will need to be ready to present information about the age of the debt to a judge if you are sued for payment. 

You may be able to ignore fake debt that you don’t actually owe, but you should keep an eye on your credit reports to make sure it doesn’t show up.

Do you have to pay zombie debt?

Maybe. If your state’s statute of limitations has run out and the debt collector can’t sue you, you may be able to avoid paying. Creditors may be able to still hound you about old debt without suing you. Most don’t, though, because they sell the debt or write it off. Also, the priority for most creditors is fresh debt.

If you acknowledge over the phone that the debt is yours or pay even a portion of it, however, that action may revive the debt and its 7-year lifespan on your credit report. If that happens, you may want to settle or pay the debt so that it doesn’t affect your credit report.

If you pay a medical debt, the credit bureaus drop the negative information from your credit report. Paid medical debt no longer stays on your credit report for 7 years.

How do I remove zombie debt from my credit report?

If a fraudulent debt appears on your credit report, you can dispute the charge with the three major credit bureaus. Send your dispute in writing. You should also send a letter to the reporting creditor stating that the debt is fraudulent.

If the debt is not fraudulent but your first delinquency was 7 years ago or longer, you can ask for the item to be removed from your credit report.

How long can a debt collector legally pursue an old debt?

A debt collector can legally pursue an old debt if:

• The debt belongs to you

• The amount is correct

• The collector is entitled to pursue payment

Even if all this is true, your state’s statute of limitations may prevent collections agencies from successfully suing you. So, a creditor can continue to hound you about a debt even if they can no longer sue you.

Does paying old debt help credit?

Paying off old debt may help your credit score, but improvement often takes time. Don’t expect a boost in your credit score in 30 days. Paying off old debt can actually ding your credit because making a payment or agreeing to do so can restart the 7-year clock on a negative item that had fallen off your credit report.

Aside from zombie debt, how long can an old debt stay on your credit report?

A debt typically remains on your credit report for 7 years, but some kinds of debt will appear for as long as 10 years. 

A paid medical debt should fall off your credit report, but unpaid medical debts can remain for up to 7 years.

What happens if you ignore attempts to collect a debt that’s not zombie debt?

If you don’t respond to a collections request, the agency could sue you. If it wins the lawsuit, the agency might get a court judgment to garnish your wages or place a lien on your home. This legal action may also impact your credit report.

How can I get a legitimate collection removed from my credit report without paying?

Removing a collection from your credit report takes patience and some work, but there are ways to do it. One way is to hire a credit repair service, but if you don’t want to do that or can’t afford the expense, you can do most of the work yourself. In fact, at least one credit bureau advises against hiring credit repair companies.

Here are some do-it-yourself approaches that may get a collection scrubbed from your credit report:

• If you find an error, dispute the collection.

• If you don’t find any errors, ask the credit bureau to validate the debt.

• If the debt is not paid, keep paying on time.

• If the debt is paid, send a goodwill letter asking for the item to be removed.

• Wait for the negative item to drop off your report.

• File bankruptcy.

• Paid medical debts should drop off your report, but if they don’t contact the credit bureaus.

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Written by:

Shaquana Watson-Harkness

Shaquana Watson-Harkness is a wealth literacy expert and personal finance contributor who has been featured on CNBC platforms, KYW News Radio, NextAdvisor, and in Black Enterprise. As the founder of Dollars Makes Cents, a financial coaching service, her goal is to help professional millennial women of color achieve financial independence by shifting their mindsets toward wealth-building.

Edited by:

Cindy George, MPH

Cindy George is the senior personal finance editor at GoodRx. She is an endlessly curious health journalist and digital storyteller.

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