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What To Do When A Bill Goes To A Debt Collection Agency

Molly Grace15-minute read
April 01, 2022

So, you got the dreaded call stating that you have a debt in collections. First things first: take a deep breath and try not to beat yourself up. It happens to the best of us.

Maybe you had a huge bill you couldn’t cover, or something slipped through the cracks and this call came as a surprise. Maybe an old debt that you thought was settled is suddenly coming back to haunt you. Whatever the reason, now you’ve got to deal with debt collectors.

What Is A Collection Agency?

When you owe money to an entity, whether that be a credit card company, student loan lender or even a utility provider, that entity will usually do its best to try and compel you to pay what you owe, even after your account becomes past due. However, these creditors (the entities that you owe money to) will only chase you down with late notices for so long. If you go long enough without paying your bill, your creditor may hand off the debt to a debt collection agency.

Debt collectors, generally speaking, aren’t fun to deal with. They have a reputation for calling frequently (sometimes to the point of harassment) and using high-pressure tactics to get you to pay them what you owe. Fortunately, in the U.S. there are protections for consumers regarding what debt collectors are allowed to do, and you have recourse available if you believe your rights have been violated. We’ll get more into that in a minute.

How Does Debt Collection Work?

A debt collection agency takes on the job of collecting the debt from the debtor (the person who owes money to a creditor) after the creditor has spent a certain amount of time (usually around 180 days, though it may be sooner) trying to collect the debt itself.

Debt collectors work in two different ways: trying to collect on debt on behalf of another entity, or trying to collect on debt that the agency itself owns.

In some cases, the original creditor may take a delinquent account and give it to a third-party collector to collect on their behalf. In this type of debt collection, the original creditor still owns the debt, and the collector receives a percentage of the collected payment.

With the other type of debt collection, the original creditor determines that they’re unlikely to receive payment for a debt, so they sell the debt to a debt buyer, often for pennies on the dollar. In these cases, the debt buyer (usually a collection agency or debt collection lawyer) owns the debt, so when you pay it, you’re paying them, not your original creditor.

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Know Your Rights

While getting a call from a debt collector can be a pretty scary experience and make you feel like you’re in trouble and have to do whatever they say, you do have certain rights and protections. It’s important to know what they are so you don’t get taken advantage of.

The Fair Debt Collection Practices Act regulates the ways a debt collector can communicate with debtors, and prohibits them from using scare tactics or harassment. Here are some rights you have under the FDCPA that you should be aware of:

  • Debt collectors cannot contact you before 8:00 a.m. or after 9:00 p.m.
  • They aren’t allowed to repeatedly harass you with frequent phone calls (although the FDCPA doesn’t specify an exact limit on how many times they can call you).
  • You have the right to request that the debt collector stop contacting you, after which they can only contact you to tell you they are ceasing communications or to notify you that they’re taking legal action against you. Asking a collector to stop contacting you does not make the debt go away, and if they cannot contact you, they may look for other ways to compel you to pay, including suing you.
  • Collectors cannot threaten you with action they aren’t legally authorized to or don’t intend to take (for example, a debt collector can’t threaten to garnish your wages unless they’ve already received a court judgment allowing them to do so).
  • You cannot be charged additional fees or interest by the debt collector that weren’t in the contract you signed with your original creditor, unless state law allows it. What this means is that the collector can charge the same amount of interest that you agreed to when you first opened the account, but they generally can’t independently decide to start charging you extra fees or interest that you didn’t agree to. Check with your state’s laws to find out what debt collectors are allowed to charge you for in your state, and if the state has any limits on how much they can charge.
  • Debt collectors cannot lie to you, threaten to have you arrested or use profane language when speaking to you.
  • Collectors cannot contact anyone other than you, your attorney, your spouse or someone who has a legal right to make decisions for you (such as a parent, if you’re a minor) except to gather information about how to contact you. They aren’t allowed to mention that they’re collecting a debt, and they are usually only allowed to contact these people one time.

If you’re dealing with a debt collector and believe your rights have been violated, you can file complaints with the Consumer Financial Protection Bureau, the Federal Trade Commission or your state’s attorney general.

The CFPB has lots of useful information on how to navigate the debt collection process. They also provide sample letters that can help you figure out how to word any correspondence you may have to send to the debt collector, such as a verification letter or a letter stating that you dispute the debt.

Additionally, be on the lookout for debt collection scams. If a collector withholds information from you, tries to get you to pay with a prepaid card, threatens you, or if something else seems off, try to independently verify that the collection agency is legit or contact your original creditor to see who they gave the debt to.

Statute Of Limitations On Debt Collection

If you’re dealing with a collection agency trying to collect on a debt that’s several years old, you may want to check what your state’s statute of limitations on debt is. In many states, it’s 3 – 6 years, though in some states it may be as long as 10 or 15 years.

Once the statute of limitations is up, the debt is considered “time-barred” and collectors are no longer allowed to sue to get you to pay it. This does not mean you’re no longer obligated to pay it. If you have an unpaid debt that’s time-barred, it will still show up on your credit report as an unpaid collections account until it’s reached 7 years past the date of delinquency, at which point it will drop off your credit report. While paying off the old debt likely won’t help your credit score, it could still help you appear more creditworthy if you want to apply for credit in the future, as lenders may be more forgiving toward a borrower with a paid-in-full collections account than a borrower with an outstanding one.

If a debt collector tries to collect on a time-barred debt that you don’t intend to or aren’t able to pay, you can request that they cease communication with you. If they attempt to sue you for a time-barred debt, do not ignore it. A judge will dismiss the lawsuit if they determine the debt to be time-barred, but if you don’t show up to court, it’s likely that you’ll receive a default judgment against you. Be sure to always keep thorough records for all your credit accounts so you’re able to defend yourself if you have to, and get a lawyer if a debt collector tries to sue you.

One important thing you want to avoid is resetting the clock on old or time-barred debt. If you talk to a debt collector about a debt, certain actions such as agreeing to make a payment or setting up a payment plan can reset the statute of limitations on your debt, and revives time-barred debt. Even simply acknowledging that the debt is yours can cause the legal clock to reset. This is why you want to be very careful about what you say when the debt collector calls.

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How To Deal With The Collection Agency: A Step-By-Step Guide

The debt collection process can feel scary, intimidating and stressful. One more time: take a deep breath. The process, while stressful, is usually pretty straightforward; just follow these steps.

1. Handling The First Phone Call

Getting a call from a debt collector can leave you flustered, to say the least. If you need time to prepare yourself and find yourself caught off guard by the first contact, or you just don’t have time to talk at that particular moment, feel free to ask them to call back later. Don’t get drawn into a conversation or get pressured into admitting to owing the debt – simply tell them a better time to call, and hang up.

When you’re ready to talk to the debt collector, you want to limit what you say. Even if you’re pretty sure you know what debt they’re talking about and that it belongs to you, you want to have all the information they have in writing before you agree to anything or share any information with them. This will help protect you from predatory debt collection practices or having to pay for a debt that you don’t actually owe.

Approach the conversation as a way to gather information, and ask questions about the agency and the debt. Find out who the collector is and the contact information for the agency. Ask about the amount owed, who the original creditor is and when the debt was incurred.

Don’t provide the collector with any personal financial information. If you’ve determined that the debt collector is legitimate and not a scam, you can give them your address so they can send you information about the debt.

Be sure to keep a written record of every time you speak with the collector, including the date and time, the person you spoke with and what you talked about.

2. Ask For Validation

When speaking to the debt collector, confirm that they’ll be mailing you a debt validation notice (if the first communication from the collector was in writing, this may already have been included). As outlined in the FDCPA, debt collectors are required to send a letter that outlines the debt they’re trying to collect on within 5 days of their initial communication. This notice should include basic information about the debt and the original creditor, as well as a statement about your right to dispute.

Once you receive your validation notice, you have 30 days to decide whether you’ll dispute the debt or not. If you don’t dispute the debt within that time period, the debt collector will assume that the debt is valid. If you want to retain your right to dispute the debt, be sure to do so within 30 days of receiving your validation notice.

Once you have more information about the debt, you can look at your own financial records to see if this is a debt you actually owe, that you haven’t already paid it off and that it’s not past the statute of limitations.

3. Verify Or Dispute The Debt

You’ve got your validation letter and have taken a look at what they say you owe. If you want more information or if you intend to dispute the debt, either because you don’t believe you owe it at all or because the amount they say you owe is inaccurate, you’ll need to send a letter to the debt collection agency stating your intentions and asking them to verify the debt. Even if you’re sure the debt is yours and you intend on paying, it’s still a good idea to ask for verification before you do so.

Whenever you send a letter to the debt collection agency, be sure to date it and keep a copy for your records. Additionally, the U.S. Postal Service has two services that you may want to utilize when corresponding with a debt collector: Certified Mail and Return Receipt. These services provide verification that your letter was delivered and received by your intended recipient, so a debt collector can’t claim that they never received it.

In your letter, you’ll want to ask for verification that the debt is real, that you owe it and that the collector has the authority to collect on it. Unfortunately, collectors typically aren’t required by law to give you a lot of information. Some collectors may provide you with all the information you requested in your verification letter, while others may only give you the name and address of your original creditor.

When you send a debt verification letter, the collection agency is required by law to stop attempting to collect the debt until they’ve verified it.

Again, if you need help writing your letter, the CFPB has some really helpful sample letters that you can use as templates.

If you know for a fact that the debt isn’t yours and notify the collector that you’re disputing it, you should also reach out to all three credit reporting agencies (Equifax®, Experian™ and TransUnion®) and dispute the account on each credit report if the collector has already reported the account.

If a collections account in your name is the result of identity theft, the FTC’s website for identity theft victims has a sample letter you can use as a template for dealing with the collection agency.

If after receiving verification you still believe you don’t owe the debt and wish to dispute it, your best option is to enlist the help of a lawyer.

4. Pay Or Negotiate

Generally, if you’re paying off a debt in collections, you can either pay it off in one lump sum or you can set up a payment plan.

Think about what option makes the most sense for you financially. Paying it off all at once is a good option if you can afford to do it, because you won’t have to worry about the debt any longer. However, if the amount is very large or you don’t have a lot of money in savings, a payment plan may be the more feasible option. Just make sure that you don’t agree to a plan that is more aggressive than what your monthly budget can handle.

Before you agree to pay, you might want to consider seeing if you can negotiate the debt down a bit, especially if you owe a lot. Sometimes debt collectors are willing to settle the debt for less than the total amount you owe.

If you plan on negotiating, you may have better odds of getting what you want if you offer to pay it in one lump sum. Start low and try to get a feel for what they’re willing to accept; you may be able to get them to take 50% of what you owe to settle the debt. (Note that if the collector agrees to cancel a significant amount of debt, you may be required to report it on your taxes as income – if so, you’ll receive a form in the mail from the owner of the debt.)

Whether you’re paying the full amount, negotiating it down or entering into a payment plan, always get your payment agreement in writing before you pay, and be sure to hold onto proof that you paid.

As for the method of payment you use, it’s best to avoid giving the collector information about your personal bank account. This means you probably don’t want to set up automatic withdrawals from your checking account or use a personal check to pay off your debt. Instead, you may want to pay with a cashier’s check or money order.

5. Hold Onto Your Records

Don’t get rid of any of the records or documents you have that are related to your collections account once you paid in full or settled the account. It’s not unheard of that a settled debt will get resold to another debt collection agency, who will then try to start the whole process over again. Keeping your documentation makes proving that you’ve already paid the debt much easier.

What Happens If I Don’t Pay?

Hearing that you have a debt in collections can make you want to bury your head in the sand and avoid answering your phone. However, it’s best not to ignore the debt collector or decide not to pay a debt you owe.

If you refuse to pay or ignore the debt collector’s communications, they’re allowed to take legal action against you to compel you to pay. If they take you to court and receive a judgment against you, they could garnish your wages (meaning that your employer will be required to deduct a portion of your paycheck and send it to the debt collector) or seize assets such as your bank accounts.

Communicating With The Debt Collector: Dos And Don’ts

Remember: Be careful what you say when communicating with the debt collection agency. Here’s a list of do’s and don’ts to help you know what you should and shouldn’t say.

  • Don’t admit to owing the debt or agree to pay it until you’ve reviewed all the information in writing.
  • Do limit what you say over the phone. Stick to asking simple questions and don’t give them an opportunity to twist what you’re saying into an admission of ownership.
  • Do utilize Certified Mail and Return Receipt services for all written communication.
  • Don’t throw out written communications, receipts or any other related documentation (and make sure to keep copies of everything you send).

Moving On After Collections

This whole ordeal has likely been very stressful, so give yourself a pat on the back for sorting things out.

While you will (hopefully) eventually be able to move on from the stress of dealing with a debt in collections, your credit may take a little longer to recover.

When a credit account goes to collections, your credit score will likely take a significant hit. The account will also remain on your credit report for 7 years. Paying off the debt does not mean it will be removed from your credit report; however, a paid account looks better than an unpaid account in the eyes of a potential creditor, so you should still attempt to pay off the debt if you’re able to.

Additionally, keep an eye on your credit report and make sure that the debt collection agency has reported things accurately.

Rebuilding your credit after being sent to collections is a marathon, not a sprint. Focus on making on-time payments for any accounts you still have open and being a responsible credit user. Slowly, you’ll regain the points you lost, and your score will recover.

Free Yourself From Credit Card Debt In The Comfort Of Home.

With Rocket LoansSM, the easy application is completely online.

Molly Grace

Molly Grace is a staff writer focusing on mortgages, personal finance and homeownership. She has a B.A. in journalism from Indiana University. You can follow her on Twitter @themollygrace.