- When a payment is over 120 days late, creditors often send your debt to a collections agency.
- Almost any kind of payment can be sent to collections, such as credit card debt, subscription fees, or rent.
- Having a debt sent to collections can significantly hurt your credit score.
If you own debt that you haven't paid for months, your debt could fall into the hands of a collection agency. Collection agencies will attempt to recover the money owed via email, phone, and mail.
While being pursued by debt collectors can be stressful, it's essential to understand what it means to have your debt in collections, what your rights are as a consumer, and how to deal with it.
Introduction to debt collection
When you default on one or more of your debts or fail to make payments for a period of time, your original creditor will close your account, and send it off to a collections agency. These collections agencies will do everything they're legally allowed to do in order to collect your outstanding debt.
Your debt doesn't go into collections immediately after a late payment. Your creditor will first notify you of the missed payment, and after 120 to 180 days of delinquency, the company will turn over your debt to a collection agency.
If your debt is in collections, it doesn't mean that you no longer have to repay your dues. Instead, your lender will charge off your debt to a collection agency or may sell your debt to a debt buyer for pennies on the dollar. At that point, you owe the collection agency, which is usually more aggressive with its collection efforts than lenders.
The debt collection process
Debt can be debilitating and hard to eliminate. However, ignoring debt collectors can result in further damage to your credit score and your creditor taking you to court.
Verification of the debt
The Consumer Financial Protection Bureau (CFPB) cautions consumers to avoid making a payment over the phone and giving out personal information until they can verify the legitimacy of the debt collector.
Gather the following information before taking action on your debt in collections:
- Name, address, and phone number of the debt collection agency
- The amount of debt you owe, including any additional fees
- What the debt was for, and when it was incurred
- Name of the original creditor
- Whether you owe the debt or are a co-signer on the debt
You're also entitled to receive a validation of debt letter from the debt collection agency. The debt collector must send this letter to you within five days of initial contact. You have 30 days to respond to the letter for more information or to dispute the debt in writing.
"In addition to disclosing more details about the collection agency, the validation should include the amount you owe, the name of the original creditor, and other details about the debt. If they don't provide this required information, there is a good chance they are not legitimate," says Bruce McClary, senior vice president of membership and communication at the National Foundation for Credit Counseling.
Payment negotiations
You can either pay your debt off entirely or set up a payment plan with your debt collectors. If you think you will struggle to pay off your debt, consider debt settlement, which involves negotiating with creditors to reduce your original debt amount. You can find the right option for you in our guide to the best debt settlement companies.
Legal actions
The owner of your debt, either your creditor or a collections agency, can obtain a court order to garnish your wages or levy your bank account to pay your debt. They're more likely to sue if you have a high amount of debt. While they typically sue over amounts over $1,000, just because your debt falls below that threshold doesn't make you safe.
Types of debt collected
Almost any type of payment can be sent to debt collections agencies, including but not limited to:
- Credit card balances
- Student loans
- Auto loans
- Personal loans
- Medical bills
- Utility bills
- Rental payments
- Subscription fees
- Bank fees and overdrafts
- Fines and fees from courts, law enforcement, or government agencies
Consumer rights and debt collection laws
Fair Debt Collection Practices Act (FDCPA)
The Fair Debt Collection Practices Act (FDCPA) protects consumer rights regarding debt collection practices.
There are also specific consumer protections outside the FDCPA for each state, according to McClary. You can usually find a list of your rights in your state through the state attorney general's office website or your consumer protection agency.
Your rights during the collection process
Debt collection agencies must conform to several guidelines outlined by the FDCPA, including but not limited to the following:
- Must only contact you within regular hours (Between 8 a.m. and 9 p.m. in your time zone)
- Must not use intimidation strategies to coerce debt payments, like using threatening language or falsifying information
- Must abide by your communication request (i.e., not calling you at work or only contacting your attorney)
- Must not disclose your debt situation to friends, family, co-workers, etc., without your permission
- Should not repeatedly call within short periods of time
Natalia Brown, chief client operations officer at the National Debt Relief says that statute limitations or the amount of time debt collectors can collect your debt applies. So, if your debt is past the statutes of limitation, debt collectors can no longer sue you for your unpaid debt. The statute of limitations varies by state but generally does not exceed 10 years.
How to report debt collection violations
If you find that a debt collector is being aggressive, intimidating, calling you outside of regular hours, or even threatening to embarrass you by making your debts public, you can submit a complaint against the debt collector with the Consumer Financial Protection Bureau. It's important to keep a record of any communications that you receive from a debt collector, like letters, texts, and documents. Take note of the dates, times, and names of the people you speak with.
How to deal with debt collectors
While responding to debt collection agencies is necessary to avoid more severe consequences, exercising caution before exchanging your payment or personal information is equally important.
Communicating with debt collectors
After verifying the legitimacy of your debt, respond to your debt collectors as soon as possible.
"Be honest about your circumstances when communicating with the debt collector. It often helps to let them know that you are not intentionally trying to avoid your obligation to repay a debt you legitimately owe," says McClary. He also recommends keeping a detailed record of your interactions with your debt collector.
Not paying your debt or responding to your debt collectors won't make them go away. The collection agency may even contact your friends and family to find out where you live, your phone number, and your work location.
Disputing a debt
If you believe it is an error, challenge the debt with the credit bureaus, and the debt collector in writing as soon as possible. The CFPB provides sample letter templates for requesting information, disputing a debt, and requesting limited contact. If you think you are being harassed by a debt collector, you can also submit a complaint with the CFPB.
McClary also suggests working with a nonprofit credit counseling agency that can help you create a debt management plan that works for your budget and the collection agency." Just because you have a debt that is in the hands of a collection agency, it isn't necessarily a sign that it's too late to make affordable repayment arrangements," McClary says.
Having your debt in collections can negatively impact your credit score and may stay on your report for up to seven years.
Seeking legal help
If you think you are being harassed by a debt collector and that they are violating the FDCPA, you can sue them. If you can prove that they violated your rights, you could receive $1,000 per violation.
Frequently asked questions about debt collection
When your debt goes to collections, debt collectors will try to pursue you for payment. This can negatively affect your credit score and even result in legal recourses like garnishing your wage or taking money from your bank account to pay your debts.
Debt collection is serious because it usually means your account has been delinquent for a while. This can cause your credit score to plunge and even result in your creditor suing you. If your debt is in collections, you should take it seriously and act immediately.
You can request in writing that debt collectors stop contacting you. If you do, they have to stop, but more severe collection actions may take place.
Yes, a debt collector can sue you. If the debt remains unpaid, a debt collector can file a lawsuit to collect the debt if it is within the statute of limitations.
