How Credit Card Debt Collection Works

Learn the players and steps involved in the collection of credit card debt.

By , Attorney University of Denver Sturm College of Law
Updated 9/19/2023

If you don't pay your credit card bills, you'll probably start getting collection calls and written demands for payment—possibly from companies that don't seem to have anything to do with your credit card company. As time passes, different companies might contact you to say they're collecting the debt or own it.

You might even get sued by a company whose name you don't recognize.

Who's Who in Credit Card Debt Collection

The various parties involved in credit card debt collection often include the original creditor, debt collection agencies, debt buyers, and lawyers. Understanding the role of these players and the life cycle of your credit card debt can be helpful when negotiating a settlement or dealing with a lawsuit.

  • Original creditor. The original creditor is your credit card company, such as Chase, Bank of America, or American Express. Retailers can also be original creditors when they extend credit. Some stores, like Target, qualify consumers for credit, have their own credit departments, and issue retail credit cards.
  • Collection agencies. A "collection agency" is a company the creditor hires to collect the debt on the creditor's behalf. Collection agencies usually get paid a percentage of the money they recover or a flat fee. The collection agency will often refer to the original creditor as its "client" because the original creditor still owns the loan.
  • Debt buyers. A "debt buyer" is different than a collection agency. Debt buyers purchase old debts from original creditors, like banks, credit card companies, and car loan lenders. They often purchase debt from the original creditor at a steep discount, buying thousands of accounts simultaneously. Unlike a collection agency, which only tries to collect as a service to the creditor, the debt buyer actually owns the debt. Sometimes, debt buyers try to collect the debt that they've purchased. Other times, the debt buyer hires another company to collect on their behalf.
  • Lawyers. Lawyers might become involved in the collections process anytime—even before a lawsuit starts. Some collection law firms are basically collection agencies with large collection departments. The lawyers at these firms might not have any direct involvement with your debt. However, once a lawsuit to collect the credit card debt against you begins, a lawyer will be involved, though perhaps minimally. Lawyers trying to collect large volumes of credit card debt from different debtors usually spend little time on each individual suit.

The Life Cycle of Delinquent Credit Card Debt

The longer your credit card debt goes unpaid, the more it will probably change hands. Here's how the delinquent debt cycle typically works and what will likely happen throughout the process.

Collection Activities

After you fall delinquent on your credit card debt, the original creditor will typically perform collection activities, such as sending letters demanding payment and making collection calls to you. These collection activities will probably continue for about 30 to 90 days.

However, original creditors generally aren't equipped to conduct prolonged collections on long-overdue debts. And many want to avoid the negative customer relations that collecting debt might have. So, after 30 to 90 days, original creditors often send defaulted credit card debt to a collection agency.

How Collection Agencies Work

The collection agency will also send demand letters and call you to try to collect. If one collection agency fails to collect from you, another agency might give it a try. The original creditor will typically have a contract with the first collection agency for a set amount of time before the debt is reassigned.

If the first collection agency fails to collect the money owed, the original creditor will send the debt to a new collection agency. The new collection agency will have another set period to collect your debt, and if they're unsuccessful, the debt might be reassigned to a new collection agency, and so on.

A collection agency won't file a lawsuit in its own name. If a lawsuit is filed, the suit will typically be filed in the original creditor's name. So, you might have multiple collection agencies contacting you, but when you are sued, the original creditor's name is on the lawsuit.

A Debt Buyer Might Get Involved

At any time—even years after a debt is in default—the original creditor might sell your debt to a debt buyer. Debt buyers typically purchase debt from the original creditor for pennies on the dollar. The debt buyer might buy thousands of accounts at once.

Because the debt buyer has purchased your debt at such a favorable price, it usually can offer the best settlements. As a general rule, the longer you wait, the better settlement offers you'll receive. For example, the debt buyer who purchases your debt after two years will offer a better deal than the original creditor when you are 60 days in default.

A few drawbacks to waiting to settle are damage to your credit and the debt buyer might file a collection lawsuit against you (see below). Over time, you'll get multiple negative marks on your credit reports due to the extended loan default. Also, you might not want to deal with years of phone calls, letters, and collection activities by the different players as your debt gets transferred and sold.

When Lawyers Get Involved

If you get a letter from a lawyer, that doesn't necessarily mean that you're being sued. Many collection law firms are, in fact, collection agencies in disguise, with large collection departments. The lawyers might not ever have any direct involvement with your debt.

Unfortunately, unless you talk to an experienced debt collection attorney, it might be difficult to figure out whether a law firm is merely a collection agency in disguise with no intention of filing a lawsuit or whether the firm will likely sue you.

Collection Lawsuits

The original creditor or debt buyer might file a lawsuit to collect from you. More than original creditors, debt buyers tend to file lawsuits to collect their debts.

Why You Should Respond to a Lawsuit

If a debt buyer files a lawsuit against you, it's best to respond, making the debt buyer prove their case and including any defenses you have to the suit, like the debt was discharged in bankruptcy or the statute of limitations has expired. Once you respond to the lawsuit, the debt buyer will have to prove the amount of the debt it claims you owe and that it owns the debt.

Debt buyers frequently don't succeed in litigation against consumers who fight back. This is mainly because debt buyers often lack the documentation to prove their court case.

However, if you're sued by the original creditor, which usually won't have a problem coming up with the necessary documentation for proving its case, or if the debt buyer has all of the documentation that it needs to prove its case, you might want to try settling the case before it goes to trial. You might be able to settle for less than what you owe. Any settlement amount will likely have attorneys' fees and court costs added by this point. Also, be very aware of court deadlines, even if you are trying to negotiate a settlement.

What Happens If You Don't Respond to the Suit

If you don't file a timely response to the lawsuit with the court, a judge may enter a default judgment against you. (A "default judgment" is an automatic win for the party that filed the suit.) The debt buyer may then collect from you through various collection methods, like garnishing your wages or levying your bank account.

For debt buyers, filing lawsuits against debtors is a numbers game. The debt buyer is gambling that the money it can collect after getting default judgments will be more than it spent on buying and litigating the debts. So, the debt buyer will file hundreds, if not thousands, of suits, knowing that most people won't respond. Again, if you respond, the debt buyer could have a tough time winning the case.

Getting Help

If you're receiving collection calls and demand letters from a creditor, collection agency, or debt buyer (or you're already being sued), consider talking to a debt relief attorney to get advice about what to do in your particular circumstances.

Again, if you have a lot of debts, you might want to consider filing for bankruptcy. In that situation, you'll want to talk to a bankruptcy lawyer.

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