Types of Zombie Debt
XOjane today refers to zombie debt: “WTF is “Zombie Debt”? How to Avoid Paying Something You Don’t Actually Owe” by Alison Freer:
Zombie debt is any debt that you aren’t legally obligated to pay for any number of reasons, the big three being:
1. It’s already been settled in bankruptcy proceedings.
2. It’s the result of mistaken identity or identity theft.
3. The statute of limitations on said debt has expired.
Zombie debt has gotten its catchy nickname because it’s debt that just won’t die. …
If the debt in question really is zombie debt, it’s dead.
This is NOT the same as zombie foreclosures in which the debt is likely still legal debt, or zombie firms who stay alive on questionable debt-financing. Freer’s “zombie debt” is not debt at all. She conflates the term with “junk debt” because so much junk debt is this kind of dead debt, but even some junk debt is not dead. It’s important to understand that harassing phone calls from creditors are not the same as real debt but also that not all zombie debt is legally dead.
In the zombie foreclosure crisis, the banks are refusing to complete foreclosure processes. Those mortgages probably still exist, perhaps the bank can’t (or doesn’t want to) prove the debt but if they did it would create real debt obligations. These debts are in limbo but they are not dead. The bank may not want to own the property, but the debt is still there.
And then there’s zombie companies, borrowing to survive, barely paying off their interest and seem inevitably doomed when interest rates hike. But again, until an actual bankruptcy, those debts are real. In contrast, Freer’s claims of zombie debts are not debts at all, because they have already settled by law.
So there are at least three different kinds of debt zombies:
1) debts that are no longer legally enforceable
2) debts that could be enforced but are not currently being enforced
3) debts likely to default in the near future
Either way, Freer has some good advice, and with links to other articles about “zombie debt”:
…what you should do when these undead creditors come calling. The number one rule of zombie debt (or any debt, for that matter) is never to acknowledge the debt. Admit nothing. … Keep quiet, ask for proof in writing, and determine if the statute of limitations has run out on the debt or not.
If it has, then it’s a dead debt and the collection agency is wrong, but if it’s not then the zombie is potentially very much alive.