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How much do you know about the horror of zombie debt?

In a post this past summer, our blog discussed so-called "zombie foreclosures" and how they were proving to be a very real problem for homeowners here in the Sunshine State. While you might be tempted to think that these zombie-esque horrors were somehow confined to the real estate sector, guess again.

Indeed, experts are warning consumers to be on guard against the nightmarish reality of what is known as "zombie debt."

What is zombie debt?    

When creditors have relatively old debt on their books, they will often sell it to third-party debt collectors for mere pennies on the dollar. These debt collectors, in turn, will look to maximize their expenditure by seeking to collect on these sometimes years-old debts, even if it means collecting only a portion of what is actually owed.

What forms can zombie debt take?

Some of the more common forms of zombie debt include debts owed but forgotten, debts stemming from fraudulent charges related to identity theft, debts already settled with creditors, debts eliminated in bankruptcy and debts beyond the statute of limitations for collection.

Why is zombie debt so disconcerting?

The primary problem with zombie debt is that it is often so old or has been re-sold so many times that the underlying information is incorrect, such that debt collectors erroneously seek payment.

In addition, even though many of these debts are beyond the statute of limitations for collection, if a person makes even one nominal payment due to high-pressure collection tactics, it will essentially resurrect the debt and make them vulnerable to another collection lawsuit.

What can consumers do to protect themselves?

Experts urge consumers who are contacted by debt collectors to avoid making any agreement to repay even the slightest amount of money. Instead, they advise asking for what is known as a validation letter, which will outline key information about the debt (amount, original creditor, how it can be challenged, etc.) and researching the applicable statute of limitations for debt collection.

The next steps, say experts, depends largely upon what these investigative tactics turn up:

  • If the debt is not owed or not yours: Pen a letter challenging it within 30 days of first contact.
  • If the debt was already paid: Pen a letter demanding all contact cease given your past payment, as they are bound to do so by the Fair Debt Collections Practices Act.
  • If the debt is owed and you can't afford it: Consider all avenues including credit counseling or even personal bankruptcy

If you are being harassed by creditors and facing mounting financial troubles, consider speaking with an experienced legal professional to learn more about your options for securing a fresh start via Chapter 7 or Chapter 13 bankruptcy. 

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