Facts You Should Know About Old Debt and Zombie Collections

No matter if you want to clean up your credit report or have an old zombie account coming back from the dead to haunt you, it’s important to understand your rights. Laura answers a question about old debt, explains the statute of limitations, gives advice for dealing with collectors, and offers four ways to handle accounts in collection.

Laura Adams, MBA
9-minute read
Episode #487

3.    Settle your debt for less than owed.

If you want to pay some amount of your debt, most collectors are very willing to settle for a partial payment. For instance, Kimberley owes $11,000 and could offer to pay $5,000 to release her from any further obligation.

Always get a settlement offer in writing first, otherwise your payment could be considered a partial payment, reviving the statute of limitations in some states.

Always get a settlement offer in writing first, otherwise your payment could be considered a partial payment, reviving the statute of limitations in some states.

When you settle a debt that’s still on your credit report the status changes to “settled,” for the remainder of its 7-year history. This indicates that the debt was not paid in full, as originally agreed, and will have a negative effect on your credit scores. That’s better for your credit than leaving it unpaid, but is not as good as paying it in full.

4.    Pay nothing on your debt.

As I previously mentioned, if you don’t pay a debt, you still owe it even after the statute of limitations expires or it falls off your credit reports. Creditors can try to contact you and collect money indefinitely, even if they can’t sue you.

So, my advice for Kimberley is to get clear about how she feels about the debt. Even though she gave her car back to the lender, the $11,000 is likely a deficiency balance they couldn’t cover after selling the vehicle.

If she wants to pay some amount to never hear from creditors again, then I’d move in the direction of a settlement. But if she can’t afford a settlement, thinks the debt is an error, or isn’t bothered by getting contacted from creditors then she could pay nothing.

I can’t make the decision for you, because everyone’s life and financial situation is different. You’re the only one who really knows if you truly can or can’t afford to pay a legitimate debt.

See also: 5 Ways to Get a Loan With Bad Credit

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About the Author

Laura Adams, MBA

Laura Adams received an MBA from the University of Florida. She's an award-winning personal finance author, speaker, and consumer advocate who is a frequent, trusted source for the national media. Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlersbook is her newest title. Laura's previous book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show.