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 goes by, several different companies might contact you to say that they're collecting the debt or that they now own the debt. You might even get sued by a company whose name you don't recognize.
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 different players, along with the life cycle of your credit card debt, can be helpful when negotiating a settlement or when dealing with a lawsuit.
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.
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. Then, if the creditor isn't able to collect from you,it will likely send the defaulted credit card debt to a collection agency, which 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.
At any time—even years after a debt is in default—the original creditor might sell your debt to a debt buyer. Debt buyers normally purchase debt for pennies on the dollar from the original creditor. 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 most favorable settlements. As a general rule, the longer you wait, the more favorable settlement offers you will receive. For example, the debt buyer who purchases your debt after two years will offer a better deal than will the original creditor when you are 60 days in default.
A few drawbacks to waiting to settle, though, are damage to your credit, and the debt buyer might file a collection lawsuit against you (see below). As time goes by, you'll get multiple negative marks on your credit report due to the extended default of the loan. 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.
The original creditor or debt buyer might file a lawsuit to collect from you. Debt buyers, more so than original creditors, tend to file lawsuits to collect their debts.
If a debt buyer files a lawsuit against you, it's best to respond, making the debt buyer prove its 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 due in large part to the fact that debt buyers often lack the documentation required to prove their case in court.
Though, 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. By this point, though, any settlement amount will likely have attorneys' fees and court costs added to it. Also, be very aware of court deadlines even if you are trying to negotiate a settlement.
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 use various collection methods, like garnishing your wages or levying your bank account, to collect from you.
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 do respond, the debt buyer could have a tough time winning the case.
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.