What to Expect When Your Debt Goes to Collection

Find out how debt collection agencies operate. Use the law to your advantage.

Updated by , Attorney University of Denver Sturm College of Law
Updated 5/05/2023

If you have a debt sent to a debt collector, it pays to learn how collection agencies operate. You can expect to hear from a collection agency when the original creditor transfers your debt. Professional debt collectors know that the earlier they contact you, the higher their chance of collecting.

Also, collection agents get paid for results. So, you might get calls or angry texts from a stressed-out, rude collector who doesn't much care what the law allows.

Once you know that the collector is likely to strike fast and possibly use illegal tactics, you can get a game plan in place.

Your Strategy Once Your Debt Goes to Collection

Generally, your strategy should involve learning the law and using this knowledge wisely. The federal Fair Debt Collection Practices Act limits what collectors can and can't do.

If a collector violates this law, you can sue them or report the collector to a federal agency, like the Consumer Financial Protection Bureau (CFPB) or the Federal Trade Commission (FTC). State law might protect debtors from unscrupulous debt collectors, too.

You might also be able to use legal violations as leverage when trying to negotiate a favorable settlement. Debtors who know the law and use it to their advantage often get more time to pay, have late fees dropped, settle debts for less than the full amount they owe, and get negative information removed from their credit reports.

When Will Your Debt Go to Collection?

If you ignore a creditor after it contacts you about a debt, your account will likely be turned over to a collection agency or sold to a debt buyer. If the creditor continues to own the debt but turns it over to a debt collection agency with a contract to collect, this arrangement is called "assigned debt." Or the creditor might sell the debt to a collection agency called "purchased debt."

The types of debts most likely to go to a collection agency or debt buyer are credit card and phone debts, followed by other utilities, auto, government, and medical debts.

What to Know When Your Debt Is in Collection

Once you know how collection agencies operate, you can appropriately respond when they contact you. You might, for instance, decide to try to settle the debt for less than you owe or work out a payment plan.

Before you negotiate, however, make sure you consider all options, including filing for bankruptcy (see below). Also, be careful about making a payment or agreeing to pay. Making a partial payment, a promise to pay, or even acknowledging that you owe a debt you haven't been paying might reset an expired statute of limitations.

You might also use the law to force the collector to stop contacting you.

What to Keep in Mind When Dealing With a Collector

Here's some basic information to remember when dealing with a collector.

If the Debt is Assigned, Collection Agencies Take Their Cues From the Creditor

If the debt is assigned to a collection agency but still owned by the creditor, the collection agency generally can't sue you without the original creditor's authorization. If the original creditor insists that the agency collect 100% of the debt, the agency can't accept less from you without getting the original creditor's okay.

Bill Collecting Is a Lucrative Business

Collection agents get paid for results. Some earn high salaries. Other companies pay their collectors meager wages plus commissions, which means you might have to deal with a nasty collector who isn't worried about complying with the law.

Agencies With Assigned Debts Usually Keep Between 25% and 60% of What They Collect

The older the account, the higher the agency's fee. Also, sometimes an agency charges per letter or communication—something like 50¢ per letter or $1 per call.

So, the collector has an incentive to contact you repeatedly. The agency might also text or email you to try to collect.

Collection Agencies Are Choosy

Before an agency tries to collect, it evaluates its likelihood of success. It might carry thousands—or even tens of thousands—of delinquent accounts and must prioritize which ones to go after. If success looks likely, the agency will move full speed ahead.

However, if the chances of finding you are low, the odds of collecting money are slim. If your credit file shows that you've defaulted on 20 other accounts, the agency might give your debt low priority.

Collection Agencies That Purchase Debt Might Not Have Good Information

Buying debts has become a massive business for collection agencies. Especially if your debt is old, you're likely to find yourself dealing with someone who has bought a bundle of debts for pennies on the dollar.

Because the collector might not have any of the original credit documents and only a screenshot with information about the debt, the information it has might very well be incorrect. The collector might even have bought the debt from another collector, not the original creditor, which increases the likelihood that the collector doesn't have accurate information about the debt.

Get Prepared to Handle Debt Collectors

Debt collectors often violate the law while trying to get money from debtors. If you know your rights, you won't be intimidated by a debt collector's illegal tactics. Also, you might even be able to use the debt collector's violations of the law to your benefit.

Know Your Rights: Learn What Collectors Can—and Can't—Do

Again, the federal Fair Debt Collection Practices Act (FDCPA) (15 U.S.C. §§ 1692 and following) limits what collectors can and can't do. For instance, this law prohibits debt collectors from using obscene language or threatening you with violence if you don't pay. Some states have similar laws that provide even more protections than federal law.

If a debt collector violates your rights under the FDCPA or state law, you:

  • can use the debt collector's violations to your benefit when negotiating a settlement
  • sue the collector for damages, or
  • file a complaint with the CFPB, which monitors debt collectors with more than $10 million in annual receipts, or with the FTC.

The FDCPA also gives you the right to tell a debt collector to stop contacting you or to stop contacting you in certain ways.

Your Legal Right to Dispute and Verify the Debt

Under the FDCPA, you get the right to dispute the debt. The debt collector then has to verify it. You may also ask the collector to identify the original creditor.

Either in its first contact with you or within five days of that contact, the debt collector is required to give you a notice that includes the following information:

  • the amount of the debt
  • the name of the creditor (or debt collector) to whom the debt is currently owed
  • that you have 30 days to dispute the validity of the debt
  • that if you don't dispute the validity, the debt collector will assume it is valid
  • that if you dispute the debt's validity in writing within 30 days, the debt collector must send you verification of the debt, and
  • that if, within that 30 days, you send a written request for the name and address of the original creditor, the debt collector must provide it (if it is different from the company trying to collect the debt). (15 U.S.C. § 1692g(a)).

As of November 30, 2021, this debt validation notice must contain additional information as well.

Even if the debt collector doesn't provide this notice, you can still dispute the debt, ask for debt validation, and request the original creditor's name. It's a good idea to always validate the debt if a debt collector contacts you. The amount of the debt could be inaccurate, or the debt might be against someone else.

Generally, once you dispute a debt or request the original creditor's identity, the debt collector has to cease collection efforts until it verifies the debt or identifies the creditor, and sends this information to you.

Negotiating a Settlement With a Debt Collector

If you have some cash on hand, you might consider negotiating with the collector. You could offer a lump-sum settlement or try to work out a payment plan. If the collector violated the FDCPA, you can use the violation as leverage in your negotiations.

Exactly how much leverage you'll get by threatening the collector with an FDCPA lawsuit depends on the strength of your case. If you have strong evidence—say you have records of abusive phone calls, harassing texts, and offensive voicemails—you'll probably have considerable clout in debt settlement negotiations.

Other Options for Handling Debt in Collections

Again, don't forget to consider all options before you start negotiating with collectors, like filing for bankruptcy. If you're judgment proof, you might consider ignoring the collector, though this tactic isn't usually the best option.

Another alternative is waiting until the statute of limitations expires. The statute of limitations is the number of years the collector has to sue you for a money judgment. Once that period passes, the collector can't get a judgment against you. But the collector might sue you before it expires.

Keep in mind that you can stop calls and other communications by telling the collector in writing to stop contacting you.

How Debt Collection Will Affect Your Credit

Any debt starts out as a current account (or perhaps "too new to rate"). As you fall behind on the payments, the debt is typically reported to the credit reporting bureaus as 30 days late, 60 days late, 90 days late, etc. Each missed payment hurts your credit.

The creditor will probably transfer or sell the debt to a debt collector or debt buyer three to six months after you default. When the debt is sold or transferred, a new collection account is added to your credit history.

So, after your debt has been transferred or sold, it will probably show up two times in your credit history. If the debt is sold again, another account is added to your credit history. The previous accounts are no longer shown as active, but they'll still appear as part of the account's history.

Negotiating Improvements to Your Credit

All of the accounts—the original account and any subsequent collection accounts—will ordinarily be deleted at the same time, which is seven years from the original delinquency. If you negotiate a settlement, you may ask to have any negative information about the debt removed from your credit files.

If the creditor or debt collector agrees to delete the tradeline, all information will be removed. So, if you had several years of positive payment history before you defaulted on the account, that positive information will also be deleted.

Be aware, too, that only information from the particular creditor or debt collector with which you reach an agreement will be deleted. Negative information about the same account from a different creditor or debt collector will remain in your credit history. For example, suppose you work out an agreement with a debt collector to remove negative information about an account. The tradeline that the original creditor submitted to the credit reporting bureaus showing that the account was sent to collection will remain unless you also reach a separate agreement with that creditor.

Be sure to get any agreement involving changes to your credit history in writing. Otherwise, the creditor or collector is unlikely to revise what it reports to a credit reporting bureau after you've settled.

Talk to an Attorney

If you need help dealing with an aggressive debt collector, figuring out what option is best for handling your debts, negotiating a settlement, or responding to a lawsuit for nonpayment of a debt, consider consulting with a debt relief lawyer. Once you've hired a lawyer, under the FDCPA, a collector must talk to your attorney only—not you—unless you give permission to contact you or your lawyer doesn't respond to the collection agency's communications.

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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