Zombie Debt What It Is and How to Deal with Collectors
Zombie Debt: What It Is and How to Deal with Collectors Skip to content
Motley Fool Stock Advisor recommendations have an average return of 397%. For $79 (or just $1.52 per week), join more than 1 million members and don't miss their upcoming stock picks. 30 day money-back guarantee. Sign Up Now In many situations, however, the debtor has moved away and can’t be found, or simply has no money. After a while, it is not cost-effective for the lender to continue collection attempts and the accounts are thus “charged off” and taken off the lender’s books. Most lenders will stop trying to collect entirely once the debt is three to six years old. At that point it has passed the statute of limitations, and the debtor is no longer legally required to pay it. The statute of limitations varies by state and type of debt. Those old debts still have some value, however. While the original lender may no longer find it worth their while to try to collect, other companies do. Uncollectable debts are often sold for a small percentage of their original face value to other debt collection companies, even if the statute of limitations on whether the debt can be collected has passed. Since the zombie debt collection company pays so little for the debts they acquire, getting paid on even a fraction of the loans makes for a profitable business model. Companies that buy uncollectable debts can pay as little as 4% of the face value of the loan. That is, if the original debt was $1,000, the new creditor will pay about $40 for it. If this company can get just one person to repay a $1,000 debt in full, that covers costs to purchase 25 similar loans. Most of the time, however, such a debt is years old. The debtor won’t remember it, and it might not even show up on their credit report anymore. Or, perhaps, the debtor declared bankruptcy, so the debt has been legally wiped out. Regardless, if the debt is old enough, the debtor may not be legally required to settle it. Most states have a statute of limitations on how long a lender can attempt to collect on a debt. While the debt is still considered valid even after the statute of limitations has passed, you aren’t legally required to pay it.
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By Kira Botkin Date July 05, 2022FEATURED PROMOTION
If you’ve had debt in the past you couldn’t pay, some of those accounts may have been written off as “uncollectable.” In other words, the company may have stopped trying to collect because they were unable to get you to pay or to reach you at all. However, in recent years, a new breed of debt collector has started to buy these old debts and attempt to collect on them all over again. Given their propensity to rise from the grave, these debts are known as “zombie debt.”What Is Zombie Debt
When a person can’t or won’t pay a debt, the lender has a number of different methods by which to get back their money. These usually include harassing phone calls, letters, and possibly even wage garnishment.Motley Fool Stock Advisor recommendations have an average return of 397%. For $79 (or just $1.52 per week), join more than 1 million members and don't miss their upcoming stock picks. 30 day money-back guarantee. Sign Up Now In many situations, however, the debtor has moved away and can’t be found, or simply has no money. After a while, it is not cost-effective for the lender to continue collection attempts and the accounts are thus “charged off” and taken off the lender’s books. Most lenders will stop trying to collect entirely once the debt is three to six years old. At that point it has passed the statute of limitations, and the debtor is no longer legally required to pay it. The statute of limitations varies by state and type of debt. Those old debts still have some value, however. While the original lender may no longer find it worth their while to try to collect, other companies do. Uncollectable debts are often sold for a small percentage of their original face value to other debt collection companies, even if the statute of limitations on whether the debt can be collected has passed. Since the zombie debt collection company pays so little for the debts they acquire, getting paid on even a fraction of the loans makes for a profitable business model. Companies that buy uncollectable debts can pay as little as 4% of the face value of the loan. That is, if the original debt was $1,000, the new creditor will pay about $40 for it. If this company can get just one person to repay a $1,000 debt in full, that covers costs to purchase 25 similar loans. Most of the time, however, such a debt is years old. The debtor won’t remember it, and it might not even show up on their credit report anymore. Or, perhaps, the debtor declared bankruptcy, so the debt has been legally wiped out. Regardless, if the debt is old enough, the debtor may not be legally required to settle it. Most states have a statute of limitations on how long a lender can attempt to collect on a debt. While the debt is still considered valid even after the statute of limitations has passed, you aren’t legally required to pay it.