It is not uncommon for creditors to send disputed accounts to collectors. Most of the credit in the United States is held by a handful of HUGE banks that do not address consumer disputes very well. If a bill collector is calling you about a debt that you dispute, ignoring the calls and letters is the worst thing you can do. One particular type of debt known as “Zombie Debt” is debt that has expired, was paid, or was never owed by you (especially if the victim had their identity stolen), but keeps returning every few months with a new collection agency. Zombie debt is addressed later in this article.

Step 1: Dispute it in writing: Be clear and concise, explain in writing, not over the phone, why you do not owe the debt and demand that they provide proof of the debt by asking for a “method of verification.” This means they must tell you why they think you owe the debt and with whom they spoke with at the office of the creditor. Tell them in the letter, “I do not wish to be contacted by phone about this debt. In accordance with the Fair Debt Collections Practices Act, I am requesting that all correspondence be written.” Of course, save all those letters.

You always have the right to hang up the phone without saying goodbye. Never be hounded into staying on the phone out of a sense of politeness. Bill collectors will use your good manners against you. You will not hurt their feelings; a hang up is one of the nicest things that happens to people in this trade. The longer you stay on the line, the more likely you will make some mistake in the collector’s favor. Hang up the phone.

Step 2: MAKE NO PAYMENTS: Don’t even acknowledge the debt. Making a payment, even a very small one, verifies that you owe the debt and in many states it even resets the statute of limitations. One collector who has been hounding my dad about an invalid debt for $11,000 that is past the statute of limitations keeps saying, “C’mon, everyone has five dollars. Can’t you make a payment of $5 per month?” With the software they have at their disposal, they know that my dad owns his home outright. Their plan is to re-age this debt with the first payment and then sue him and obtain a lien against his house that they can then sell to another debt buyer.

Step 3: Hound them back: If you do not hear back from them in 15 days, send them another letter, this time threatening reports to the Federal Trade Commission, your attorney general, their attorney general, and any number of other agencies (see How to Report near the bottom of Part 3 of this series). Do not let this just go away; make sure you get something from the collector that says that they cannot verify the debt. Here's a link to another Hubber who has written a fantastic hub on writing letters to collectors that don't expose you to liability:

http://hubpages.com/hub/Sample-letters-for-disputes-to-creditors--collectors-and-credit-bureaus

Step 4: Watch your credit report. If the collector reports a debt on your credit report that you do not owe, then dispute with the credit reporting agency (CRA), not with the creditor or collection agency. The big three CRAs are Equifax, Experian, and TransUnion.

By the way, did you know that you can get your credit reports from all three agencies for free once per year? Go to https://www.annualcreditreport.com/cra/index.jsp. You are also entitled to your credit report if you are denied credit because of any particular item that appeared on your report.

Here’s a video on disputing with the CRAs. It’s a little corny, and part advertisement for a product, but has some great info nonetheless:

Here is how it happens: Debt buying is a fast growing industry. Collection agents buy old debt that is deemed uncollectible for pennies on the dollar (my agency once purchased a credit card debt portfolio worth $105,000 for $6,500). They then collect what they can from that debt and sell it to someone else for them to take a crack at it. Often times if the collector can get old debt re-aged through a small payment, they can just wait for lifestyle changes that occur over a person’s life, like the purchase of a house or an inheritance, and then pounce with a lawsuit.

One thing you should keep in mind is that debt purchasers, even though they own the debt, are still regulated as third-party collectors under the Fair Debt Collections Practices Act (FDCPA) and must obey the regulations therein. The Wikipedia page on FDCPA is a great source for the credit layperson. Review the required and prohibited conduct sections often and report violations to all applicable agencies quickly.

MSN Money has a good article on Zombie Debt.

Scambusters.org presents these tactics they routinely see used by zombie debt collectors:

· Suing over debts even after the statute of limitations has expired.

· "Re-aging" debts on consumer credit reports illegally. The collectors tell credit bureaus that an old debt is a new one. This extends the seven-year limit on reporting bad credit and puts more repayment pressure on the consumer.

· Promising that a payment will remove a black mark from the consumer's credit report. Many times the collector won't make good on the promise and the payment can revive the statute of limitations on the debt.

· Bait and switch credit cards. Some credit card companies have offered borrowers low-rate credit cards and then tacked old debts they have purchased from other lenders onto the balance. Consumers say they were never told the old debt would come with the card.

· Verbally abusing consumers and making repeated phone calls even after they were requested to stop. This violates federal law.

Zombie debt is hard to kill so you must use all the tools at your disposal. See the How To Report section of part 3 in this series for a list of agencies to report to. Also, make sure you dispute the account anytime it appears on your credit report.

Of course you can always hire an attorney if you’re unable to kill this debt yourself, but that is a last, and expensive, resort. Be sure to save all your correspondence and notes you make so that your attorney has the best case possible.