October 28, 2013

By Margaret H. Johnson

It’s Halloween and it’s time to get scared again. But I have something much more frightening than ghouls, Frankenstein or vampires. Yes, indeed. Zombie debts can fly out of the darkest caves and scare you into an appointment with a lawyer. Can anything beat that?

 A zombie debt is a debt that has died but keeps coming back to life. There are all kinds of them. It could be a forgotten dental bill or an old Visa balance.

One kind of zombie debt refers to a debt you’ve already paid. For example, a collection agency contacts you about a particular debt. You pay it. 6 months later you find out at the credit bureau that the bank or financial institution is still reporting the debt as outstanding. You go back and forth between the collection agency and the financial institution until finally, it is agreed that the debt was paid. All is fine until you find out 6 months or a year later that the debt has come back to life and is being reported as owing once again at the credit bureau. The consumer then has to go back on the merry go round of sorting out the errors with the creditor that keeps reporting the zombie debt as being alive.

Banks and collection agencies have debt recycle policies that keep many debts that are dead, alive. For example, if the one collection agency is unable to collect the debt after 90 days the debt is pulled from that collection agency and reassigned to another. This cycle keeps on going, theoretically, until the debt is paid. This cycle in part has given birth to the zombie debt phenomenon.

Another kind of zombie debt is a disputed debt. There are many legitimate reasons why people dispute debts. A contractor who did not complete the work on your house could be one type.  You might be the wrong person – someone with a familiar name like D. Johnson or R. Smith. Or, you did not complete the transaction. In other words, you didn’t sign the credit card transaction slip. Someone else did.

Some financial institutions use the collection agencies as a tool to collect on these kinds of debts rather than investigate the dispute properly or go to court and let a court of competent jurisdiction resolve the dispute.

A client recently came to me shivering with fright about an old debt he had paid years ago but it didn’t show up in the mortgage preapproval process when they purchased their new home and removed all the subject clauses. The mortgage broker called 5 days before the closing date and said, “We seem to have a problem. There’s an R9 on your bureau report.”

Upon further investigation he found out it was indeed a debt for $2,600.00 that was paid by an insurance company over 6 years ago. There was absolutely no doubt the debt was not owing but this R9 threatened their house purchase over a ‘small amount.’ He didn’t have time to sue the creditor without much bigger trouble with losing his purchase. His wife insisted he pay it off and not jeopardize their house purchase.

A third kind of zombie debt is one that is statue-barred, which means the debt is no longer owing because of the statute of limitations. Until March 2013, in British Columbia, the limitation period was 6 years. As of March 2013, the limitation period has been reduced to 2 years.

So, Halloween isn’t the only time of year some of us face zombies. Maybe is a good time to take decisive steps get rid of your zombie debts.

If you are a victim of a zombie collection then here is what I recommend:

1. Get the name of the collector and the name of the company. If they refuse to give it then refuse to talk to them. You should immediately file a complaint with the provincial debt collection regulator about the collector’s refusal to identify themselves if this should happen. This also ensures that the company is properly licensed.
2. Ask for proof that the money is owed. That may include the merchant’s authorization slip. If the Agency cannot or will not supply this, then file a complaint with the regulator and demand that no further calls/letters be made to you without proper evidence of the debt.
3. Record the number of calls/letters you receive and the times and dates.
4. Complain, complain, complain – to the debt collection regulators.
5. Consider legal action if harassment does not stop.
6. Call me.