Night of the Living Debt: What You Need to Know About Zombie Debt Collection

For those of you with defaulted debts, you probably know that the amount of time they can be reported to the credit reporting agencies is no longer than seven years from the date of the default.

And, you may be aware that there’s only a finite amount of time the lender can sue you to collect the debt. That time frame is going to based on the state in which you lived when you incurred the debt.

You can read about time barred debts in this article, which I wrote for Mint a couple of years ago.

Still, there is a lot of confusion about how long collectors can attempt to collect debts using non-legal methods.

There are several incorrect assumptions regarding these old debts, sometimes referred to as “Zombie Debts.”

Debts Can Never Be Collected After They’ve Been Removed From Your Credit Reports

This is definitely incorrect.

In fact, there’s no obligation, legal or otherwise, for a creditor or collector to ever report anything to the credit reporting agencies.

And while placing a 3^rd party collection is regarded as an attempt to collect a debt, it certainly doesn’t play any role in whether or not payment for old debts can be pursued.

When a Debt Becomes Time-Barred It Can No Longer Be Reported to Credit Reports

Again, this is incorrect.

The amount of time a debt in collections can be reported to the credit bureaus is seven years and that period of time is not influenced in any way by the state laws that define when a debt becomes time-barred.

In fact, there isn’t one state where a debt becomes time-barred after seven years. Bad debts will be on a credit report longer than when a debt becomes time-barred in some 18 states.

If You Make a Payment on an Old Debt You Reset The Clock of Credit Reporting

No, this is incorrect.

Nothing…I repeat…nothing you do will cause a bad debt to remain on a credit report longer than seven years as allowed by the Fair Credit Reporting Act.

You can pay it off in installments, you can never pay it, you can settle it, or you can dispute it…nothing you do will cause it to remain longer than seven years.

Even if the debt is sold from one collection agency to another the newer collection, it has to also be removed seven years from the date the original account went into default, not seven years from the date the new collector purchased the debt.

If You Make a Payment on an Old Debt You Reset The Time-Barred Clock

This is true.

Many debtors find themselves getting into trouble because they’re trying to do the right thing by making payments on ancient debts.

Let’s say you incurred a debt in Maryland and went into default. A collector could only sue you for three years afterwards.

But, if you choose to make a payment on the defaulted debt at year three you’ve essentially restarted the clock and could get sued any time in the next three years.

Some collectors will attempt to get the debtor to reset the clock unknowingly by asking them to make some sort of small “good faith” payment in a very small amount.

If you do choose to make a payment after your defaulted debt has become time-barred, fine. You should pay off your debts because it’s the right thing to do.

However, if you do choose to pay something towards time barred debt then I’d highly suggest you either pay it in full or settled it in full. That way the collector has no reason to pursue you legally for the remaining amount because there isn’t one.

John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. The opinions expressed in his articles are his and not of Mint.com or Intuit. Follow John on Twitter.