Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Zombie Debt

What it is:

Zombie debt is debt that won't die.
 

How it works (Example):

Let's say John Doe ran up a $10,000 credit card bill in his 20s. He works out an agreement with the credit card company, pays $2,000, and is told that the rest of the bill is discharged.

However, six years later, the credit card company sells the remaining $8,000 of debt to a collection agency, which begins calling John about payment. The debt has become zombie debt.

Why it Matters:

Zombie debt is very frustrating, and borrowers should never borrow money they can't pay back. Sometimes, borrowers have recourse on zombie debt, however. For instance, the state may set a statute of limitations that restricts how long a company has to collect a debt. Collection agencies must also provide written evidence to the borrower that the borrower indeed owes the money.

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