Zombie debt shouldn’t exist, but it does and it can hurt you

The problem of unpaid debt is one that bothers both consumers and creditors. Creditors would like to get paid, but consumers often fail to pay up. When that happens, the creditors generally notify the credit bureaus of the unpaid debts. The accounts are then noted as being in default on the consumer’s credit report. The debts will stay there until they are paid, until they are discharged through a bankruptcy filing or for seven years, whichever comes first. Until one of those events occurs, the consumer will have a “black mark” on their credit report and that black mark will hurt their credit score, making it more difficult and more expensive to borrow money.

In theory, that debt should go away after seven years or a bankruptcy filing. That’s the way the system is designed to work. On occasion, however, these debts that have gone away will suddenly reappear as new debts. How does that happen? What does it mean?

The official term used to describe such events is “re-aging”, although some people use the amusing term “zombie debt.” It is, for lack of a better way to describe it, debt that comes back from the dead. It works like this: After a certain period of time, creditors decide that their customers are unlikely to repay delinquent accounts. At that time, the debt is reported to the credit bureaus and the creditor writes it off as a loss. Frequently, the company will then sell the bad debt for pennies on the dollar to debt collection agencies who would like to make an attempt to collect from the consumer themselves. If they buy the debt for a fraction of its value but collect even half of it from the consumer, they have earned a tidy profit. It is these debt collection agencies that are responsible for the old debt coming to life. Often, these agencies will report the debt to the credit bureaus as a new obligation. That starts the seven year clock all over again, even if the debt was wiped out through a bankruptcy filing.

This can have a substantial impact on the credit score of the consumer, who would be genuinely surprised to see an old debt thought to be long gone suddenly return to live. The practice is illegal; once a debt is removed from a credit report it is supposed to stay gone, But unscrupulous collectors can, and do, report these things just to make life difficult for the people from whom they are trying to collect.

What can you do if you become a victim of re-aged debt? If you have documentation that the debt was paid, is over seven years old or has been cleared through bankruptcy, you may have to contact the credit bureaus and submit proof to them. In some cases, you may even have to hire an attorney, particularly if you are dealing with an aggressive collection agency.

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