Zombie debts can haunt you

BY JAY BRIJPAUL

Zombie debts are debts from the past that are restored to life and haunt the debtor. These debts are unsecure debts such as credit cards, phone bills and line of credits. They are over three years old. Some of these debts are written off by the lender, paid off or simply a case of wrong identity. These debts are usually raised from the dead when debt is sold from one collection agency to another. A collection agency is an agency used by lenders to collect money past due. In most cases the collection agencies will buy bad debts for a fraction of the amount owing and then try to collect.

In Canada, the statue of limitation protects consumers from lawsuits when their unsecure debts are not paid in two years. In the event of default, creditors or collection agencies have two years to seek legal action. When debts are sold to collection agencies, in many instances, the date reported to the credit bureau is the sold date instead of the actual date from default and unsuspecting consumers are caught in the trap.

Debts over two years old are dead but come alive when a debtor acknowledges that the money is owing. Amar received a call from a collection agency about an unpaid credit from Sears Canada. The person from the credit bureau said that if Amar do not pay, the bureau would slap a lean on his house. Amar agreed to settle for half the outstanding balance. The bureau sent Amar a “settlement letter” for him to sign. Amar chose not to sign and was off the hook. Amar’s acknowledgement must be in writing for it to be valid. Had Amar signed the agreement, the statue of limitation would have reverted to two years.

Although the statue of limitation is two years for credit, it remains on the bureau for as long as six years before it is taken off. During this time, some creditors try to collect because it is still on their radar. The easiest way for them is when someone acknowledges that they owe the debt and therefore reset the clock on the statute of limitations. Sometimes, the collection agencies would try to get one payment from the debtor and that resets the clock on collection. Never acknowledge debt and if threatened by a lawsuit, ask the caller to send proof of the debt. Chances are the caller will back away.

Ethan was forced into bankruptcy because of a zombie debt he had five years ago.  Ethan was young, carefree and unemployed then. After university, he found a good job and started to raise a family. He was unaware of the statue of limitations and when the collection agency requested that he send an email, he did, acknowledging that he had taken the debt and never repaid it. The company refused to settle and sued for interest as well. Ethan should have “let sleeping zombies sleep”.

My policy is simple. If I owe, I should repay. However, if I am caught between two rocks and my debts are written off by the creditor, I still own the debt even if the statute of limitations had passed. My credit score will be lowered, and a low credit score can prevent me from applying for a mortgage or renting an apartment. I know that collection agencies buy debts for as low as two cents to the dollar and are willing to negotiate a settlement. I prefer a lump sum payment and not monthly because with monthly, I can restart the clock. By making a settlement, I can rebuild my credit score.

Jenifer was hounded with calls from the collection agency. She was told that if she made a $10.00 payment, the calls would stop. The calls did stop but the statute of limitation restarted, and she was sued for the balance.

According to Equifax, a credit bureau that tracks the history of borrowers, Canadian debts are on the rise with low interest rates. Interest rates will eventually climb and with it, higher delinquency. Collection agencies will have a feeding frenzy.