Zombie Debt: Settled and unearned debts haunt consumer credit reports for years (2023)

In 2021, federal watchdog sees 35,000 complaints about credit reporting and debt collections

InvestigateTV explores the financial phenomenon known as “zombie debt”. Reporter: Rachel DePompa, Videojournalists: Daniel Heffner, Owen Hornstein, Scott Pace

By Rachel DePompa and Daniela Molina

Published: Jan. 30, 2023 at 4:51 PM EST

InvestigateTV - Tens of millions of Americans use credit cards. According to the New York Consumer Credit Panel, credit card debt is the most common type of debt, with “191 million Americans with at least one credit card account.”

With debt, late payments can often follow. While the numbers have dipped post-pandemic, according to the Urban Institute, in August 2021 “about 64 million people with a credit record had debt in collections.”

Debt in collections can negatively impact your credit score, which can affect your ability to apply for loans or purchase a home. According to experts, keeping your credit report clear of bad debt is critical to financial success.

But there is a financial phenomenon known as “zombie debt” that consumers and experts warn can repeatedly impact your credit report.

“Zombie debt” is a term used by the credit industry to describe debt that even after it was paid, the statute of limitations expired or in some cases was never owed at all resurfaces in collections. When the debt returns, collection agencies may still attempt to collect a debt, leading it to possibly reappear on your credit report and negatively affect your purchasing power.

Louisiana attorney David Szwak has battled zombie debt on behalf of his clients for more than three decades.

Zombie Debt: Settled and unearned debts haunt consumer credit reports for years (1)

Szwak said zombie debt often occurs when an old or expired debt – currently hidden from a consumer’s credit report – resurfaces if the reports are altered in any way. For instance, if a creditor makes any changes to the date or deletes any information from the credit report, the debt could return if it is deleted, rather than be properly suppressed. When creditors delete information, it deletes the item in the file but doesn’t mask any future changes in the report.

“So sometimes they tell you, ‘Oh, we’re removing that off your credit file,’ but then they don’t remove it. It comes right back on the file because it’s not been properly suppressed,” Szwak said. Szwak said at that point, his clients can face an uphill battle against a multitude of collectors.

Fighting Undead Debt:

U.S. Air Force veteran Jesse James found himself battling zombie debt after returning from a long tour overseas.

(Video) Dealing with "Zombie Debt"

While he was gone, his wife took over their finances. One day while checking the mail, James noticed a credit card bill. The problem was James did not have any credit cards.

Unbeknownst to James, his wife had already made a payment for the bill thinking James had opened an account while away. James said he called the credit company in hopes of getting more answers, but the credit company denied his argument.

“They said once I did [make a payment], then I had assumed the debt of that credit card and I was like ‘No, this is not mine,’” James said.

Zombie Debt: Settled and unearned debts haunt consumer credit reports for years (2)

He said he tried to argue with the credit company but to no fix. James never made another payment, and the bill for thousands of dollars went to collections. The collections agency eventually sued, and James went to court. A Shreveport, Louisiana court dismissed the claims and ruled it was a mixed credit file issue – meaning the debt belonged to someone also named Jesse James. At that point, James said he thought he would no longer have to worry about this issue.

“We thought we had everything fixed,” James said. “I kind of forgot about it.”

But when he and his wife tried to purchase a home, they found out the zombie debt had returned. James reached out to David Szwak for help.

According to Szwak, the sister company of the original debt collector had purchased the debt from the original case – even though it was supposed to be removed from James’ credit report.

“[The credit company] shifts it over to one of the sister company names, keeps writing you ugly letters, credit reporting about you,” Szwak said. “They’re just hoping to squeeze you enough to where you’ll pay it, even if you don’t owe it.”

It took four years to get the issue resolved. James said that time and the debt put his livelihood at risk.

“The company I work for right now, they take in financial responsibility,” James said. “So, showing irresponsible finances is detrimental on my job. I could have lost my job because of my finances.”

(Video) Millions of Americans mistakenly carry debt to help credit score

Szwak said although James’ debt was eventually cleared, the credit companies never confirmed to him the owner of the thousands of dollars of debt.

Statutes of Limitations:

The Fair Credit Reporting Act is a federal law designed to help ensure the accuracy, fairness, and privacy of information from consumer reporting agencies – it’s designed to protect the consumer information collected by credit bureaus. Under the law, Szwak said once you miss a payment, creditors have seven years to report you to the credit bureaus.

Once reported, each state has its own statute of limitations for different kinds of debt, meaning consumers need to understand how long a debt collector or creditor has to sue over an outstanding debt.

State statutes of limitations range from 3-15 years depending on the type of debt.

There are four different kinds of debt, according to Bankrate, a consumer financial service company:

  • Written contract – meaning there is a physical document that explains the terms and conditions in detail between two parties.
  • Oral contract – an agreement without written documentation signed by either party.
  • Promissory notes – a written contract with a written promise to make specific payments and with interest.
  • Open-ended accounts – accounts that give you a credit amount that you can use if you make payments.

The statute of limitations on debt is there to protect consumers from being sued. But consumers still have an obligation to repay that debt.

Federal Watchdog takes notice:

The Consumer Financial Protection Bureau (CFPB) is the “U.S. government agency dedicated to making sure you are treated fairly by lenders and other financial institutions.” The CFPB said in 2021 it received 35,000 complaints about credit reporting and debt collections beyond the statute of limitations, including some similar to James’.

Principal assistant director in the Office of Markets at the CFPB John McNamara helps monitor consumer financial services that cause harm to consumers.

(Video) What is Zombie Debt and can it still affect you?

He suggested if consumers notice something that should not be on their credit report, they should immediately file a complaint at consumerfinance.gov.

“Any debt that the consumers know that they paid, any collector that is trying to collect on that again has a problem, not the consumer,” McNamara said.

He said new regulation on debt collectors prevents and prohibits collectors from transferring debt that was paid, settled, or discharged in a bankruptcy proceeding.

At the end of 2021, the CFPB revised its rules about how debt collectors can communicate with consumers, including the number of times collectors can call you and what information companies are required to provide you while trying to collect any money from you.

If a collection agency sends you a notice about an old debt unfamiliar to you or one you have already paid, experts said verify your connection to that debt and identify the debt collections statute of limitations in your state.

Experts said that step is critical because once you make a payment on an old debt, even if it’s not yours, it restarts the clock on the statute of limitations.

Finally, notify the collection agency and all three credit bureaus (Experian, TransUnion, and Equifax) about your dispute in writing. Jesse James said he has learned from this experience and said his biggest takeaway is to pay close attention to your credit report and make your that debt does not go to a collection agency before you have talked to a lawyer about your case.

“If you find out that you have credit that is not yours and your credit company sends you something and you call, contact them immediately and say, ‘Hey this is not my debt,’” James said. “And if they continue to try to tell you that it is your debt, that’s when you should go to the lawyer.”

InvestigateTV reached out to the International Association of Commercial Collectors concerning their efforts to provide guidelines to prevent collection agencies from trying to collect debt consumers no longer owed. We did not hear back.

Copyright 2023 Gray Media Group, Inc. All rights reserved.

(Video) Expert advice on how to spot and protect yourself from ‘zombie debt’


Can zombie debt be reported to credit bureau? ›

According to experts, keeping your credit report clear of bad debt is critical to financial success. But there is a financial phenomenon known as “zombie debt” that consumers and experts warn can repeatedly impact your credit report.

How do you respond to zombie debt? ›

If you're being contacted about debt that actually belongs to you, it's time to pay it off and never look back! But if you're being harassed over zombie debt that isn't yours, send the agency a certified letter (return receipt requested) stating that the debt isn't yours and asking them to stop calling you.

What is considered zombie debt? ›

How Zombie Debt Works. Zombie debt generally refers to debt that is more than three years old, which has either been forgotten about, already paid off, or belonged to someone else. It can also be the result of identity theft, a computer error, or a fraudulent attempt to collect on a debt that does not exist.

How do you get zombie debt? ›

Zombie debt is typically purchased from the original creditor (or even from another debt collection agency) for pennies on the dollar. The debt collectors, who are "scavenging" for debt, then try to get the consumer to pay the debt. Over recent years, the incidence of debt scavenging has risen dramatically.

How long does a debt become uncollectible? ›

In California, the statute of limitations for consumer debt is four years. This means a creditor can't prevail in court after four years have passed, making the debt essentially uncollectable.

How many years before credit bureau erases all debts? ›

Generally speaking, negative information such as late or missed payments, accounts that have been sent to collection agencies, accounts not being paid as agreed, or bankruptcies stays on credit reports for approximately seven years.

Should I pay zombie debt? ›

Dispute the debt with the credit bureaus or creditor if you find that an error has been made. However, if the zombie debt does belong to you and is still listed on your credit report, consider paying it off or settling with the original creditor or debt collector to pay less than what's owed.

Can a debt collector restart the clock on my old debt? ›

Debt collectors can restart the clock on old debt if you: Admit the debt is yours. Make a partial payment. Agree to make a payment (even if you can't) or accept a settlement.

Can I ignore zombie debt? ›

When to Ignore Zombie Debt. If the debt is time-barred, your best recourse will be to ignore the collector. If the debt no longer appears on your credit report and has also passed the statute of limitations, then there is no reason to act on it. You can safely ignore this type of zombie debt.

How do I remove closed accounts from my credit report? ›

Send a written request to remove the account from your credit report directly to the creditor that reported the information to the credit bureau, McClary says. Ask politely if the creditor will remove the account now that it is no longer active.

Can I ask my creditors to write off my debt? ›

If you are unable to pay your debts, you should contact your creditor to let them know and see if they are willing to write off the debt.

How long can government chase a debt? ›

If HMRC launches an investigation into your finances, they can chase a debt which as old as 20 years. However, the standard timeframe for an investigation is four. Therefore, if you're hoping HMRC will simply forget about what you owe – they won't.

Can a debt be too old to collect? ›

The time limit is sometimes called the limitation period. For most debts, the time limit is 6 years since you last wrote to them or made a payment. The time limit is longer for mortgage debts.

How do you get collections forgiven? ›

While you may not be able to have your credit card debt forgiven, there are some steps you can do to make it more manageable.
  1. Work Directly With the Credit Card Issuer. ...
  2. Set Up a Debt Management Plan (DMP) ...
  3. Work With a Debt Settlement Company. ...
  4. Consolidate Your Debt. ...
  5. Declare Bankruptcy.
Feb 27, 2022

What are the new debt collection rules? ›

Debt collection agencies may not threaten legal action against the consumer if their debt has passed the statute of limitations. They can't threaten to file a lawsuit against the consumer, garnish their wages, or seize their property unless they explicitly have the right to do so.

Why seniors should not worry about old debts? ›

There are state laws that protect IRA benefits and independent retirement accounts. So, seniors' income is protected by various laws, and if they don't pay their debt, or if they're unable to pay their debt, even if they're sued, it can't be garnished or taken from them.

What happens to unpaid debts after 7 years? ›

Most negative items on your credit report, including unpaid debts, charge-offs or late payments, will fall off your credit report after 7 years since the date of the first missed payment have passed. However, it's important to remember that you'll still owe the creditor.

Can a debt collector take you to court after 7 years? ›

After six years of dormancy on a debt, a debt collector can no longer come after and sue you for an unpaid balance. Keep in mind, though, that a person can inadvertently restart the clock on old debt, which means that the six-year period can start all over again even if a significant amount of time has already lapsed.

Can I buy a house after debt settlement? ›

Can You Buy a Home After Debt Settlement? Absolutely! Lowering your debt can make a huge difference when you're ready to apply for a mortgage (what is a mortgage?). It's probably been a difficult journey getting debt relief, and like any time after you've completed a challenge, you want to reward yourself.

How many points will my credit score increase when I pay off collections? ›

Contrary to what many consumers think, paying off an account that's gone to collections will not improve your credit score.

How can I remove a collection from my credit report without paying? ›

You can ask the creditor — either the original creditor or a debt collector — for what's called a “goodwill deletion.” Write the collector a letter explaining your circumstances and why you would like the debt removed, such as if you're about to apply for a mortgage.

Is it better to pay off old debt or settle? ›

Paying a debt in full is better than settling a debt

You'll also save money. Settling the debt eliminates future interest and reduces the amount you'll repay to the lender. When you settle a debt, the creditor or debt collector will typically report the account as settled for less than what you owed.

Why you should not pay collections? ›

You may not want to pay a collector if you will never have any income or assets, if you don't owe the debt, if you want to settle for less, if the statute of limitations has expired, or if the collector doesn't own the debt.

Do collections go away without paying? ›

In most states, the debt itself does not expire or disappear until you pay it. Under the Fair Credit Reporting Act, debts can appear on your credit report generally for seven years and in a few cases, longer than that.

What debt Cannot be erased? ›

Alimony and child support. Certain unpaid taxes, such as tax liens. However, some federal, state, and local taxes may be eligible for discharge if they date back several years. Debts for willful and malicious injury to another person or property.

Can a creditor report an old debt as new? ›

Collection agencies cannot report old debt as new. If a debt is sold or put into collections, that is legally considered a continuation of the original date. It may show up multiple times on your credit report with different open dates, but they must all retain the same delinquency date.

Should I pay a collection that is 5 years old? ›

If you have a collection account that's less than seven years old, you should still pay it off if it's within the statute of limitations. First, a creditor can bring legal action against you, including garnishing your salary or your bank account, at least until the statute of limitations expires.

Can a debt collector take all your money out of your bank account? ›

If a debt collector has a court judgment, then it may be able to garnish your bank account or wages. Certain debts owed to the government may also result in garnishment, even without a judgment.

How do you break a debt trap? ›

What is debt trap? 7 smart ways to manage your debts effectively
  1. Debt Trap: People today have easy access to credit cards, overdrafts, personal loans, car loans, home loans and other source of funding. ...
  2. NO extra borrowings. ...
  3. Saving. ...
  4. Pay dues on time. ...
  5. Check limits. ...
  6. Build an emergency fund. ...
  7. Seek professional help.
Dec 27, 2022

Does debt ever get forgiven? ›

Debt forgiveness happens when a lender forgives either all or some of a borrower's outstanding balance on their loan or credit account. For a creditor to erase a portion of the debt or the entirety of debt owed, typically the borrower must qualify for a special program.

What Cannot be removed from your credit report? ›

In general, accurate information cannot be removed from a credit report. Once paid, the status of the account should be updated automatically to show that it is paid in full. Negative account information, such as late payments and charge offs, remain on the report for 7 years from the original delinquency date.

Should I remove old closed accounts from credit report? ›

Should you remove closed accounts from your credit report? You should attempt to remove closed accounts that contain inaccurate information or negative items that are eligible for removal. Otherwise, there is generally no need to remove closed accounts from your credit report.

Can a creditor still report on a closed account? ›

Even though the credit card account is closed, it will remain on your credit report at least for the duration of the credit reporting time limit. If you're still making payments on the balance, the payment history and timeliness of your payments will also be reported.

How do I ask for debt forgiveness? ›

I respectfully request that you forgive my alleged debt, as my condition precludes any employment, and my current and future income does not support any debt repayment. Please respond to my request in writing to the address below at your earliest convenience. Thank-you in advance for your understanding of my situation.

Can you getting debt written off due to mental health? ›

Mental health and debt write off

If your circumstances are unlikely to improve then you can ask your creditors to write off the debt. Write off is usually seen as a last resort, where there are no assets or money to pay the debt.

Who qualifies for debt write off? ›

You will have to show the creditor that it is within their interests to write-off the debt as your circumstances mean you cannot afford to repay the debt and that your situation is unlikely to change in the long term.

Am I liable for my deceased husband's debts? ›

When someone dies, debts they leave are paid out of their 'estate' (money and property they leave behind). You're only responsible for their debts if you had a joint loan or agreement or provided a loan guarantee - you aren't automatically responsible for a husband's, wife's or civil partner's debts.

How do I stop paying my credit card legally? ›

No, you really can't get rid of credit card debt without paying. Filing bankruptcy for credit card debt will indeed lets you escape credit card debt. But if you're asking, “How can I get rid of credit card debt without paying anything to anybody?” the answer is still: You can't!

Can Social Security be garnished for credit card debt? ›

Generally no, debt collectors can't take your Social Security or VA benefits directly out of your bank account or prepaid card. After a debt collector sues you for the debt and wins a judgment, it can get a court order for your bank or credit union to turn over money from your account or prepaid card.

At what age do you have the most debt? ›

The Average Debt for Those 35-44

Debt levels are higher for households with a head between the ages of 35 and 44. In fact, householders in this age bracket (who have debt) have the highest debt levels of any age bracket.

At what age should you be debt free? ›

“Shark Tank” investor Kevin O'Leary has said the ideal age to be debt-free is 45, especially if you want to retire by age 60. Being debt-free — including paying off your mortgage — by your mid-40s puts you on the early path toward success, O'Leary argued.

Should I pay a debt that is 7 years old? ›

Does debt go away after 7 years? Once the statute of limitations passes, the debt is considered time-barred, which means the creditor can sue you but the case will be dismissed. The lender or collection agency can still attempt to collect the debt by contacting you directly.

What loans are not reported to credit bureau? ›

Unlike credit cards, many BNPL loans, especially short term loans, are not reported to credit bureaus. As a result, when younger or subprime borrowers opt for BNPL loans, their credit scores usually won't be affected by an on-time BNPL payment history.

Can disputed debt be reported to credit agencies? ›

If you dispute the debt, the debt collector cannot report it to a credit reporting agency unless and until it verifies the debt. If the debt collector has already reported the debt (before it received your dispute letter), it must notify the credit reporting agencies that the debt is disputed.

Can a collection agency report an old debt to credit bureau? ›

Once the debt collector has followed the rules about how to contact you, then they can report your debt to a credit reporting company, provided they follow other laws about credit reporting.

What can be reported to credit bureau? ›

Credit bureaus collect the following types of information:
  • Credit account information, including payment history, balance of an account, when the account was opened, date of the last activity, high credit on the account and the credit limit on the account.
  • Debt collections.
  • Bankruptcies.

What are the most predatory loans? ›

Payday loans are one of the most commonly cited examples of predatory lending because they have high fees and short repayment terms.

What loans dont check bank accounts? ›

9 lenders that don't require bank accounts
LenderLoan type
Regional FinancePersonal loanRead review
Capital Good FundCDFI loanRead review
Dollar Loan CenterInstallment loanRead review
OneMain FinancialPersonal loanGo to site
5 more rows

What are the most predatory loan types? ›

Common predatory lending practices
  • Equity Stripping. The lender makes a loan based upon the equity in your home, whether or not you can make the payments. ...
  • Bait-and-switch schemes. ...
  • Loan Flipping. ...
  • Packing. ...
  • Hidden Balloon Payments.

Can a debt collector pursue you after a debt has been removed from credit report? ›

Yes, creditors can continue to attempt to collect a debt you owe after it has been removed from your credit report, and it can still continue to accrue interest and fees.

What is the best reason to put when disputing a collection? ›

Normally, collections are disputed because the debtor believes they are incorrect for some reason. For example, if you review a copy of your credit report and you see a collection account that you believe belongs to another person, has an incorrect balance or is greater than seven years old, you can file a dispute.

What happens if you don't pay a collection agency after 7 years? ›

Does debt go away after 7 years? Once the statute of limitations passes, the debt is considered time-barred, which means the creditor can sue you but the case will be dismissed. The lender or collection agency can still attempt to collect the debt by contacting you directly.

Can a collection agency put old debt as new? ›

Collection agencies cannot report old debt as new. If a debt is sold or put into collections, that is legally considered a continuation of the original date. It may show up multiple times on your credit report with different open dates, but they must all retain the same delinquency date.


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