What Happens if Your Account Goes to Debt Collection
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Have you been avoiding your phone out of fear of a creditor reaching you? It’s never fun dealing with a debt you can’t afford to repay, and when creditors get involved, it can feel even more overwhelming.
Sure, it’s easy advice to warn against getting into a mountain of debt ahead of time, but life happens. Maybe you’ve lost your job, taken a demotion, or an unexpected pressing expense has popped up and now you can’t pay your credit card debt or medical bills. Whatever the reason, if your account goes to debt collection, you may be panicking about what happens next.
I’ll walk you through how the debt collection process works and let you know what your options are so you can get your credit back on track.
In this article
When payments go to collections
Every time you miss a payment, you receive a derogatory mark on your account — and likewise, on your . After a few missed payments (the rules vary depending on your account holder), your creditor might decide to send your account to collections to recoup as much money from you as possible.
There’s often a grace period — usually 30 days — before this happens. If you’re able to pay off your balance in a lump sum or work out a repayment plan with the original creditor, then your account won’t be sent to collections.
If you miss these phone calls or notices or can’t afford to pay the debt collector, that’s when your account will be turned over to collections.
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What happens when a debt goes to collections?
Some creditors, like credit card or loan companies, may have their own collections department that takes over attempting to collect the debt once it’s past due. Others might sell off your debt to a third-party debt collector who will then attempt to handle the collection efforts.
Whenever an account is sent to collections, it’s noted on your credit report, for all three credit bureaus, Experian, Equifax, and Transunion. An account that’s been sent to collections can negatively impact your credit history, causing your score to drop. This could result in you being denied credit opportunities until you’re able to pay off the debt and bring your score back up.
Know your rights when dealing with an account in debt collection
Once your debt is sent to a collection agency, it’s important to know your options and your legal rights so you understand what to do when the debt collector contacts you. Under the Fair Debt Collection Practices Act (FDCPA) you have certain protections under federal law, including:
- Limited hours when collectors can call you (between 8 a.m. and 9 p.m. local time)
- Limited times collectors can call you per day
- Does not allow collectors to try to intimidate you, use offensive language, or threaten arrest and other legal action without premise
- Does not allow them to contact your employer, family, friends, or coworkers
- Does not allow contact with you if you have legal representation or have written to them expressing that you wish to cease communication
To stop the debt collector from contacting you, you can write a cease and desist letter telling them to cut off all contact. Be sure to keep a record of your files. While this option should end contact, it will not erase your debt.
If you are being harassed by a debt collector or believe they are breaking an FDCPA protection, you can contact the FTC (Federal Trade Commission), Consumer Financial Protection Bureau, or your state’s attorney general.
My account is in collections — now what?
Once a debt collector is in charge of the balance you owe, you have a few options for debt settlement. You can repay the debt in full right away or negotiate a repayment plan. Sometimes you can even offer to pay a percentage of the balance and the debt collector will consider the debt paid in full. When giving any money to a debt collector, make sure you receive receipts for your records.
You should know that once you pay off a debt in collections, the negative mark on your credit report can still stay there for up to seven years. If you see a derogatory remark regarding old debt on your report from more than seven years ago, you should dispute it with the crediting bureau.
What happens if I don’t pay the debt collector?
If you ignore the debt collector or if you find out the debt collector is suing you for money owed, you should seek legal counsel. In most cases, you’ll be taken to court, and — if the debt is valid — the judge will request you pay all or a portion of your debt.
During collection lawsuits, if a judge rules that you do legally have to repay the debt, the collection agency might request to garnish your wages or work out a payment plan with you. While going to court can seem frightening, it’s important to follow through on this request. Failure to do so could result in the judge ruling against you, creating a court order which could lead to your wages being garnished automatically, money in your bank accounts being frozen, or a lien being placed on your home.
That said, every state has its own statute of limitations after which a debt collector can no longer go after you for money owed — while debt collectors cannot sue you after this period of time, they can still contact you.
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Can you dispute a debt?
If you’re being contacted about a debt that isn’t yours or that you’ve paid off, you can try to entirely. To do so, first, get the name of the creditor to find out more about the debt in question. Then, let the agency know that you would like to dispute this debt and provide them with any records you have confirming you’ve already paid this debt or that the debt isn’t yours.
While the debt collection agency is investigating this issue, they are not permitted to contact you to try to continue to collect on your debt. You’ll receive a letter in the mail with the collection agency’s decision and debt validation letter if they determine you owe the debt.
Are there debt management resources available to help with unpaid debts?
The federal government does offer credit counseling resources that you can look into to help you determine the best course of action for repaying your debt. It’s important to thoroughly research a credit counseling company before partnering with them, since there are many scams designed to make money off of these services.
Some legitimate credit counselors and services do charge for debt relief, but their fees should be apparent upfront. I recommend starting with the resources on the Government information and Sciences website for debt counseling programs and legal advice.
Is it possible to remove the collection accounts from my credit report?
Your account went to collections, you repaid the balance, and now you’re wondering if it’s possible to get rid of the negative marks on your credit report. As previously stated, these marks will fall off after seven years, but what if you want them gone sooner?
Newer versions of — two of the most popular credit scoring methods — actually disregard accounts in collections when calculating your credit score.
If you believe the collections account is on your report in error and that you’ve paid it off before it went to collections or that it isn’t your debt, you can dispute the error with the credit bureau to have it removed. If the investigation finds an error, your credit report will be corrected. If it confirms the debt is valid, it will not be removed.
If you paid the collection balance right away, you can also ask the creditor for a good faith deletion. You can request this from the debt collector or the original creditor at the time of payment or by writing a letter explaining the circumstances that led to the outstanding balance and asking them if they will remove it.
This decision is up to the creditor ultimately, but they will sometimes remove the collections report.
Be aware that there are services out there that request money in exchange for deleting marks off of your credit report. These companies often overcharge for their services and will attempt the same steps that you can take — disputing the mark or contacting the creditor and asking them to remove it — so I don’t recommend using these services. There’s also no guarantee they’ll be able to help, so you may be out even more money in the end.
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The bottom line
Dealing with debt can feel uncomfortable and embarrassing. But you’re not alone. The average American carries $92,479 in debt (across all types of debt). Forgetting to pay a credit card or missing notice in the mail could lead to your account going to collections.
The good news is, if you act fast, some collections companies may allow you to repay the debt without noting it on your credit report. This is especially true when your account is in pre-collections and not yet reported as being in collections.
And, even if your credit report is impacted, working with the debt collector to come up with a payment plan you can afford is ideal. Don’t ignore your debt and hope it will go away. If you do, you might end up in court, with frozen assets or garnished wages.
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Writer
Courtney Johnston is a freelance writer, specializing in finance, travel, and health. She has written for The Chicago Tribune, Benzinga, BestReviews, Mashvisor, Fundera, MoneyGeek, and The Culture Trip. She also teaches writing instruction at the University of Indianapolis. Courtney currently resides in Indianapolis.
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