Creditors often hire collection agencies to help them collect debts from individuals who have previously defaulted on payment obligations for a loan, credit card or other form of debt. Collection agencies focus solely on collecting delinquent debts, making them more efficient at recovering funds than the original creditor, which must focus on aspects of consumer accounts other than collecting payments.
Collection agencies primarily use telephone calls and written demands to notify debtors that payment is due immediately. Not paying a collection agency will result in more frequent calls and letters. The Fair Debt Collection Practices Act (FDCPA) makes it illegal for debt collectors to use abusive language or threats when collecting debts. Unfortunately, this does not mean that the practice won’t occur should you refuse to submit a payment. If a collection agency cannot convince you to repay the debt, it may eventually sell the debt to yet another collection agency.
Although collection agencies may pursue you for a debt for an indefinite length of time, a company may only pursue a legal remedy until your state’s statute of limitations for debt collection expires. Thus, a collection agency possesses the right to sue you, but only for a limited amount of time. The statute of limitations varies by state, but begins as soon as your payment to the original creditor goes 180 days delinquent. If you make a payment on the debt, however, this restarts the statute of limitations--giving a collection agency the right to file a lawsuit against you even if it did not previously enjoy that right.
Collection agencies can damage your credit by reporting evidence of the debt to the credit bureaus. Not only are collection accounts derogatory entries, but lenders inspecting your credit history will see the collection account and consider you a higher risk. By paying a collection debt immediately, you can sometimes avoid a collection report ever appearing in your credit files. Once a collection agency reports your debt to the credit bureaus, paying it won’t secure its removal or negate the negative impact it has on your credit score.
If you did not incur the debt in question, you aren’t legally obligated to pay it provided you demonstrate that the debt isn’t yours. The FDCPA allows all consumers to demand that collection companies validate a debt by providing proof that the individual owes the debt and that the collection agency in question is authorized to collect the debt. Not paying a collection agency is permissible if you never accrued the debt in the first place.
If you ignore the debt and it's still within your state’s statute of limitations, the collection agency may seek legal help collecting by filing a lawsuit against you. If you do not contest the lawsuit, the court will grant a default judgment against you whether or not the debt is even yours. In many states, judgments give debt collectors the right to garnish your paychecks and bank accounts. Judgments also appear on your credit report and tarnish your credit history.
- Federal Trade Commission: Fair Debt Collection Practices Act (Section 806/809)
- NOLO: Time-Barred Debts – When Collectors Cannot Sue You For Unpaid Debts (p. 1 and 2)
- Cardreport.com: Collection Agency FAQ – What About Credit Reports?
- Bankrate.com: Debt, Collection Agencies and Your Rights
- CNN.com: Rogue Debt Collectors and How to Fight Them
- NEDAP: Debt Collection Basics
- Lawyers.com: Bank Account Seizures