What is Zombie Debt? What to Do If I’m Contacted?

If you’re struggling with debt, the last thing you need is to hear from some unknown company about a debt you didn’t know existed. But this has started happening with greater frequency now that some unscrupulous businesses are “buying” old debts so they can pursue collections. The term for this is “zombie debt,” and the companies are often called debt scavengers. Here’s what you need to know about it and what you should do if you are contacted. 

What is Zombie Debt and Do You Owe It?

Zombie debt is debt that is supposed to be dead, but it shows back up on your doorstep. When you least expect it, you receive a letter, phone call, or some other communication from a business or debt collector demanding money. Zombie debt can include things like:

  • Debts you previously resolved with the creditor or a debt collector
  • Debts that are past their statute of limitations, meaning you can no longer be sued for the money
  • Debts resolved through bankruptcy

Some zombie debt might even be completely fraudulent. These debts can result from identity theft, or the debt collectors might be scammers themselves trying to steal your personal information and money. 

Tactics Used by Zombie Debt Collectors

Debt scavengers or zombie debt collectors often use questionable or illegal tactics to entice consumers to pay old or non-existent debts. Their goal is usually to trick you into making a payment on a debt you don’t owe. By doing this, you might re-set an expired statute of limitations on the debt, which allows the collector to sue you to collect the entire debt. 

Some tactics zombie debt collectors might use include:

  • Promising to “go away” after you make a small payment — Zombie debt collectors will often vow to leave you alone if you make a small payment on the outstanding debt. Of course, this is a lie. Making a payment could reset the statute of limitations or even be an admission that a non-existent debt is yours. 
  • Promising not to report the debt on your credit report — If a creditor sends your delinquent or charged-off debt to a collector, this can remain on your credit report for over seven years. If that period has passed, the creditor can’t report the debt as “new” to get it re-listed on your credit report.
  • Threatening to sue you for the debt — Some collectors will threaten to sue over debt or even falsely represent themselves as a law firm to scare you into paying. 
  • Engaging in harassment or verbal abuse — Zombie debt collectors often verbally abuse and harass innocent consumers using offensive and abusive language in violation of the federal Fair Debt Collection Practices Act (FDCPA). 

It’s not uncommon for debt scavengers to lie and attempt to coerce consumers into making debt payments for money they don’t owe. If you suspect you’ve been contacted by one of these companies, use extreme caution. 

What to Do If You’re Contacted About Zombie Debt

If a collector contacts you about a debt you don’t believe you owe or one that’s old, you need to protect yourself. Here are some ways you can deal with zombie debt and protect yourself from unnecessary harassment. 

1. Maintain Accurate Records

Keep detailed records of all your debt payments and settlements. Having this documentation on hand can be vital if you need to dispute a debt in the future. 

2. Monitor Your Credit Report

Regularly monitoring your credit is a good way to combat claims by debt scavengers. When someone calls and tells you that you owe money, make them prove it. You can get a free credit report annually from each of the three major credit bureaus. 

3. Know Your Rights

When a debt collector calls you out of the blue demanding money, you aren’t necessarily obligated to pay. Many of these companies purchase these debts via computer files with no other documentation. Under the FDCPA, you have the right to demand debt validation. If the collector can’t provide you with the original creditor’s name, the exact amount due, and a copy of the agreement between you and the original creditor, you don’t owe anything. 

4. Understand the Statute of Limitations

The statute of limitations for debt varies by state. However, this time limit in at least 20 U.S. states is six years or less. If the debt is older than your state’s statute of limitations, you no longer owe it. 

5. Get Legal Assistance

Getting contacted about zombie debt can be stressful. If you have other unmanageable debt, it may be worthwhile to speak with a knowledgeable attorney about the benefits of bankruptcy protection. 

Bottom line: Stale or “zombie” debt is always something that can crop up. It’s important to understand your rights and have a bankruptcy attorney you can trust who can guide your choices. Gulf Coast Bankruptcy Attorney is dedicated to providing readers with helpful information about dealing with financial struggles so they can make the most informed decisions about their financial future. 

Bankruptcy and Tax Debt: What You Need to Know

If you have thought about bankruptcy, chances are that your understanding of bankruptcy is that filing for bankruptcy will eliminate your debts and give you a clean slate moving forward. While it’s definitely true that bankruptcy can provide a fresh start, it’s important to understand that not all debts are forgivable in a bankruptcy filing and that for some types of debt, what you can discharge depends on the type of bankruptcy for which you file.

When it comes to tax debt, there’s a common misconception that if you have tax debt and file for bankruptcy, the government will forgive all of your debts—including your tax debt. Unfortunately, this just isn’t necessarily true. Here’s what you should know about bankruptcy and tax debt—remember, it’s always good to talk to a professional before filing for bankruptcy.

Can You Discharge Tax Debt?

If you are filing for bankruptcy and have tax debt, there are only certain situations in which you may be able to discharge your tax debt. In fact, you can only discharge tax debt if the following criteria are satisfied:

  • The tax debt is only for income tax. If you owe taxes for anything other than taxes on earned income, you cannot discharge it in a bankruptcy filing.
  • The tax debt occurred as a result of an honest mistake or debt—it cannot have occurred out of willful evasion or tax fraud.
  • You filed a tax return for the tax debt that you are trying to discharge. In some courts, you can’t discharge debt even if you filed a late return, so make sure you ask the legal professional you’re working with if this applies to you.
  • The tax debt must be at least three years old.
  • Enough time must have passed. The IRS maintains what’s known as the 240-day rule, which means that the income tax debt must have been assessed at least 240 days before you file for bankruptcy.

Only if your debts meet all of the criteria above may they qualify for discharge during bankruptcy.

What About a Tax Lien?

If you fail to pay a tax debt, the government may issue what’s known as a tax lien. A tax lien is the government’s claim against your property. If the tax debt isn’t repaid, the lien gives the government the right to seize the debtor’s property. If the debtor does repay the debt, then the tax lien may be removed.

The bad news about having a tax lien—even if you’ve repaid it or are in the process of repaying it—is that you cannot discharge a federal tax lien, even if the tax debt meets the criteria for discharge listed above. That’s because the purpose of bankruptcy is to wipe away a personal tax, not to wipe out tax liens recorded prior to the bankruptcy filing.

Discharging Tax Debt and Chapter 13 vs. Chapter 7 Bankruptcy

The primary difference between a Chapter 13 and a Chapter 7 bankruptcy is that you must pass the means test to qualify for a Chapter 7 bankruptcy. With a Chapter 7 bankruptcy, your non-exempt assets will be liquidated, and your remaining debts will be discharged; with a Chapter 13 bankruptcy, on the other hand, you will enter a repayment plan to pay back debts and, in exchange, will be able to keep more assets. So how does this apply to those who want to discharge tax debt?

With a Chapter 13 bankruptcy and tax debt, some dischargeable tax debts might be forgiven without any repayment depending on the amount of disposable income you have. In any case, you won’t incur any interest on the tax debt that you owe.

If you file for a Chapter 7 bankruptcy on the other hand, your debt will be discharged if your debt meets the qualifications listed above and if you pass the means test—an income assessment that determines whether you have enough disposable income to pay back any portion of your existing debts.

Learn More About Bankruptcy and Tax Debt

If you are in a financial situation where bankruptcy is your best option, it’s important that you understand what debts may be dischargeable and how what you currently earn will impact which type of bankruptcy you file for, and how much of your overall debt is dischargeable. If you have questions about tax debt, you should consult with a financial professional or a bankruptcy lawyer. Filing for bankruptcy is a huge decision that will have a long-term impact on your financial health. Learn as much as you can before filing and explore all of your options in advance.

Bills, Bills, Bills—Dealing with Debt Around the Holidays

The urge to spend during the holiday season can be overwhelming. Not only are there dozens of holiday activities that may cost money to participate in, but you may also be trying to buy for everyone on your list. In fact, studies show that for the 2022 holiday season, about 70 percent of Americans plan to take on debt and that in 2021, approximately 65 percent of shoppers used their credit cards to pay for holiday expenditures. However, as of February 2022, only about 40 percent of those people hadn’t yet paid off their holiday debt.

As holiday marketing peaks and the desire to pull out your credit card spikes, remember that debt is not something you want to incur during the holiday season. For dealing with debt that you may already have—as well as avoiding new debt—this holiday season, consider the following tips—

Get Familiar with Your Financial Situation

Whenever you’re thinking about debt and budgeting, the first thing to do is take a good hard look at your finances. It’s critical that you understand your current debt-to-income ratio and what your current spending looks like. Review all of your current bills and assess your debts—on which debts are you currently accruing the greatest amounts of interest?

The more you know about your financial situation, the better prepared you’ll be to strategize when it comes to paying down your existing debt, setting a budget and avoiding new debts, and navigating holiday spending in a way that’s smart and responsible.

Know What You Need to Pay Down First

When it comes to managing debt that you already have, one of the most important things that you need to know is which of your debts you need to start paying down first. The debt you should pay down first is typically the debt that has the greatest interest rate or the debt with the greatest outstanding balance.

If you’re currently just paying interest, you need to think about analyzing your budget to reallocate more money to pay down your bills. Paying off your debt should be your number one priority.

If you do have credit card debt, do everything you can to avoid new debt.

Avoid Incurring New Debt

Incurring debt is never a good idea, but is especially bad when:

1) You already have debt that you haven’t been able to pay off in full, or/and…

2) You know that if you put something on a credit card, you will not be able to pay it off in full at the time that payment is due.

Using a credit card is only a good idea when you are confident that you will have the cash to pay the balance of your credit card in full and on time. Here are some ways to avoid incurring new debt that you can’t pay off in full and on time:

  • Know your budget. The first thing to do when thinking about spending for the holidays is to create a budget for yourself. How much do you realistically have to spend on gifts and other holiday purchases?
  • Come up with a spending strategy for gifts. Rather than writing down a list of everyone you have to buy for—which could lead you to spend more than you have a budget for—you should approach holiday spending by coming up with an amount that you can comfortably spend and then figuring out how much you want to spend on each person.
  • Get creative. If you have a small budget for holiday spending, don’t panic! The holidays are about family, love, community, compassion, and gratitude, not just gift-giving. Consider having an honest and open conversation with your family and friends about your financial situation this year. Or get creative with your gift-giving. For example, plan a fun and low-cost activity as a gift, or consider making something instead of buying something.

Avoid Common Debt-Entrapping Schemes

Credit card companies and brands love to prey on people during the holiday season. This time of year, you may be tempted by sales and bargain deals, as well as the urge to participate in buy-now-pay-later schemes. Credit card companies often offer great bonuses and prizes for opening a new line of credit during the holidays.

Whatever you do, don’t be tempted to open a bunch of new credit cards or fall victim to a buy-now-pay-later option if you know you can’t afford it! And while sales may be tempting—and are appropriate to take advantage of when within your budget—don’t spend money just to spend money.

Get Help with Debt

If you’re struggling with debt, working with a financial professional is a good idea. Remember, it’s never too late to take steps to improve your financial situation.