Zombies are a pop culture phenomenon that have dominated the media for years in everything from movies to television shows and books. At first glance, you might not understand why financial professionals and legal experts refer to some types of debt as zombie debt.
However, the phrase plays on the common cultural understanding that is zombie is something that was once dead and has since come back to life. Those dealing with zombie debts may find themselves facing threats of lawsuits or aggressive collection activity for debts that they may not even remember incurring anymore. Why have zombie debts become a big business in the United States?
Companies sell their debt to each other
Most debts have a limited shelf life. In general, creditors can typically only report unpaid debts to the credit bureaus for seven years after they first create a record of the deficiency. There are also rules that limit how long creditors can take legal action against a person for an unpaid debt.
Even if you think you currently have your finances under control, you might eventually get a phone call or a letter from a collection agency hoping to get money from you for a debt that is very old. Companies that finance customers understand that their chances of total repayment decline as time goes on and that your actions for compelling someone to repay them also become more limited.
Some companies would rather sell their debt for a fraction of its value on paper and allow another company to potentially profit off of the bad debt if they can collect the amount in full. Unfortunately, the practice of selling debt to outside companies is why zombie debts have become such a major issue for American consumers.
Companies sell, buy and try to collect on questionable debts
Companies that make their money off of debt collection will purchase bundles of debts and then attempt to turn them into revenue. All too often, those who purchase debts don’t take adequate steps to verify that the debts are valid.
People can wind up facing aggressive collection efforts over debts that are too old to be on their credit report, too old to result in a civil lawsuit or even already paid off in full. Some unethical companies will completely fabricate debts and try to collect on them or sell them to another company.
If you believe the debt in question is too old to be actionable, is not valid or has already been paid, you may need to fight back against aggressive collection activity or pending lawsuits related to zombie debt.