What is Zombie Debt?

Zombie Debt, also referred to as Stat debt or Out of Statute debt, refers to debt that is very old or no longer owed. Effectively, these debts have “come back from the dead” to haunt you again. Debt scavengers are debt collectors who purchase zombie debt from a source – the original creditor, a successor creditor who bought the original creditor’s debt, or even from another debt collection agency – often for pennies on the dollar, and who attempt to collect the debt from the debtor.

Once a debt has been in default (unpaid) for six years, the statute of limitations to collect the debt has expired. The creditor cannot file a suit to collect the debt once the debt is too old, as having been in default for six years. However, to trick you into thinking that the creditor has additional time to collect upon the debt, the creditor will (out of thin air) make up a phony date called the “charged off date”, and put that phony “charged off date” on your credit report as the date of default.

Debt Can Be Too Old To Be Collected on By Creditors

Sometimes, aged debts may be too old to properly serve as the basis for a creditor lawsuit to collect the debt in question. However, some creditors will still file a lawsuit on a too-old debt, hoping that you won’t realize that the debt is too old to support the lawsuit. The courts don’t seem to care about lawsuits filed to collect aged debt. That means that if you don’t file a response to contest the creditor’s suit, then the court will enter what is actually an improper judgment. The court expects you to be responsible enough to understand—or be represented by a qualified attorney who is knowledgeable on debt collection and aged debt practices—and if you don’t care enough to contest the suite, the court shouldn’t care either.

In addition to typical consumer and business debt, there are also some other types of debts like criminal fines or restitution which many not be subject to a statute of limitations that is as short as the time period for bringing suit on consumer and business obligations.

As you can see, it literally pays to obtain qualified legal advice about a particular debt that you owe is too old to be collected in a lawsuit. You should also be aware that statutes of limitation on aged debt can vary from state to state. If you’ve incurred a debt in the past in another state, protecting yourself with qualified legal advice is as important in those cases as it is in the state of Washington.

Creditors will return if your Chapter 13 bankruptcy plan is dismissed in most cases. The deadline for creditors to file suit to collect a debt is six years after debtor breaches the terms of their debt contract by failing to make the payments that the debt contract obligated the debtor to make on time. Even if the debtor files bankruptcy during that six-year period, the deadline for the creditor to file suit to collect the debt is neither extended nor shortened due to the fact that the debtor was in bankruptcy during the six-year time period.

Zombie debts can stem from dealings with big creditors, not just smaller companies. In May of 2015, the New York Times reported

“Two of the nation’s biggest banks will finally put to rest the zombies of consumer debt — bills that are still alive on credit reports although legally eliminated in bankruptcy — potentially providing relief to more than a million Americans.

Bank of America and JPMorgan Chase have agreed to update borrowers’ credit reports within the next three months to reflect that the debts were extinguished.

The move is a victory for borrowers whose credit reports have been marred as a result of the reported debts, imperiling their job prospects and torpedoing their chances of getting new loans.

The change by the banks emerged this week in Federal Bankruptcy Court in White Plains, where the two banks, along with Citigroup and Synchrony Financial, formerly GE Capital Retail Finance, face lawsuits accusing them of deliberately ignoring bankruptcy discharges to fetch more money when they sell off pools of bad debt to financial firms.

The lawsuits accuse the banks of engineering what amounts to a subtle but ruthless debt collection tactic, effectively holding borrowers’ credit reports hostage, refusing to fix the mistakes unless people pay money for debts that they do not actually owe.”

While it’s been over a year since the agreement was reached, if you were a customer of any of the banks mentioned in the article, and if your bankruptcy filing included a debt owed to one of those creditors over the period covered in the settlement described in the article, it pays to check your credit report to ensure that the debts that they promised to remove have in fact been removed from your credit report.

Schedule a Free Consultation with Your Tacoma Bankruptcy Attorney

When it comes time to file for bankruptcy, you need a compassionate and skilled attorney who will be able to guide you through the process as cleanly as possible. Northwest Debt Relief Law Firm, we can help you with filing for Chapter 7, Chapter 11, and Chapter 13 bankruptcy in Washington State.  We will be there every step of the way to help navigate you through the often-complex and difficult bankruptcy process.

Give us a call at (253) 780-8008 to schedule a free consultation with one of our bankruptcy attorneys. If you have any other questions about bankruptcy, one of our attorneys will be more than happy to offer advice on your particular situation.


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