What happens to debt that people are unable to pay back? A lot of the time, the banks just have to stamp them as uncollectable and write them off. They just give up trying to get those people to pay up. People who owe money and who cannot pay it back have traditionally been able to heave a sigh of relief to know that the bank has got off their case. But not anymore. The banks have found a way to give these uncollectable loans a new lease of life; almost. They call these zombie debt these days.
The bank will usually stop trying to harass you for an outstanding debt once it's tried for six years without success. There's actually a statute of limitations on loans. You're not even legally required to pay a loan back once it's six years past the last time you paid an installment. Shady debt collection companies though are happy to buy the right to collect these loans from the banks for very little money and come after you with renewed vigor all over again; kind of the way zombies get up out of the grave and start to follow you around.
Zombie debt collectors usually pay the banks about 3% of the face value of each loan. That means that for every $5000 that a deadbeat borrower owes the bank, these debt collectors will pay $150. If the zombie debt collectors can even get one out of 25 deadbeat borrowers to pay up, they would turn a profit.
So what are you supposed to do if one of these wonderful people should try to contact you for a zombie debt that you're not legally required to pay back anymore?a loan that doesn't even show up on your credit report anymore? Should you bother paying it back?
The first thing you want to do when you are contacted over the phone for zombie debt is to completely deny that the debt is yours. Frequently, they'll just try to call anyone out of the phone book to try to trick them into believing that the loan is theirs. With zombie debt, they often don't have the address of the person they are trying to collect from.
It has to be reflexive; when anyone calls about the loan that you aren't completely sure is current, you have to automatically deny it's yours. If you show the slightest amount of hesitation, they can use that as proof that you do owe them something. All you need to do is to ask them to send you proof. The Fair Debt Collection Practices Act requires that they provide you with this kind of proof.
If you do send you proof, you need to see what you can do about it. If you ever declared bankruptcy, it's possible that these lenders never got news of it. You just have to send them a copy of the discharge order.
Beyond the statute of limitations, other than wanting to be an honest person and pay your debts, there is really no real reason why you should pay anything. It doesn't even affect your credit anymore. Sometimes, they try to trick you by telling you that you only have to pay a small part of what you owe and they'll let you go. If you do this though, this restarts the statute of limitations all over again and you'll find yourself owing everything.
