Credit cards charge some of the highest interest rates, so staying on top of your debt can be challenging. If you’ve fallen behind on your credit card payments, your debt may have been sold to a collections agency. A collections agency is a third-party company that gets paid by another company to collect debt or purchases past-due debt and then tries to collect it.
A credit card issuer may sell consumer debt to a debt buyer. The debt buyer then employs a collections agency if a customer is overdue on payments and unlikely to pay it back. Many types of debt can be sold to collections agencies. This includes credit card debt, medical bills, student loans, personal loans, and more.
Understanding How Credit Card Debt is Sold to Collection Agencies
You incur a late fee whenever you’re late on your credit card payments. You also incur a fee if you fail to make the minimum payment within 30 days. However, your account may be sent to collections if this goes on for days or months.
A card issuer typically sends your account to collections if you haven’t made payments for six months or less. If a collections agency cannot recover the full amount of your debt, they may consider selling the debt you owe to a third-party debt buyer, which can happen multiple times. For a fraction of the total debt, a debt buyer can purchase the debt from the original creditor and attempt to recover the total amount still due by you. That debt buyer also has the right to sue you for the unpaid debt since they are now the debt owner.
What Should You Do When the Debt Collection Agency Reaches Out?
When your debt is sold to a collections agency or simply sent to collections, the agency will contact you initially in writing—usually with a debt validation letter. The collections agency must provide you with information regarding the name of your original creditor, the amount of your debt, the name of the debt collector, and more, as per the Fair Debt Collection Practices Act, also known as the FDCPA. This information is usually provided either via written notice in the mail or electronically.
The agency must disclose this information in their first contact with you or within five days after that. Otherwise, they are not in compliance with the FDCPA, and you may file a complaint with the Consumer Financial Protection Bureau (CFPB) or Federal Trade Commission (FTC).
The first thing you’ll want to do after you receive the information is confirm that everything is correct. If you believe the debt is not yours, the amount is incorrect, or you’ve already paid it off, it’s important that you dispute the debt within 30 days of receiving notice of it. Try communicating with the agency via written communication so there’s established documentation.
If you believe that you’ve already paid off the debt, make sure to provide copies of documents, such as past credit card statements, that confirm that you’ve made payments.
And finally, do not ignore the bill. If you fail to file a dispute within 30 days of receiving the confirmation, you may lose your right to do so.
How Collection Agencies Recover Debts
Collections agencies cannot use any means possible to recover your unpaid debt. The FDCPA regulates how collection agencies can communicate with customers. Some states also have laws that protect consumers from unfair debt collection practices.
Guidelines on Dealing with Debt Collectors
There are limitations on how agencies can reach out. For example, debt collectors can not call you before 8 a.m. or after 9 p.m. or threaten violence. They are not allowed to harass or mislead you to recoup debts.
For a complete list of illegal debt collection practices, refer to the CFPB or your state’s website. If you think that a debt collector has violated any of these rules, you may be able to sue them.
You may also refuse and limit future communications with the collection agency via letter. They must stop contacting you after this (except under a few circumstances). Note that if the debt collector stops contacting you, the debt doesn’t go away. You’re still on the hook for paying it back.
If you don’t pay back your debt, a collections agency can sue you. They can obtain a judgment, and then look to garnish your wages. They can then freeze money from your bank account, and attach it to other assets like your home.
What to Do When Your Debt is Sold to a Collection Agency
It’s important that you figure out a budget and timeline for paying back your balance once you’ve verified the debt is yours. Since debt collectors are focused on recovering as much debt as possible, they may be flexible when it comes to repayment.
How to Negotiate with a Collection Agency
If you cannot afford their proposed payment plan, you may be able to negotiate a payment plan with a collections agency.
- Figure out what you can afford. Take your monthly salary and subtract your living expenses, other monthly debt payments, and any retirement or emergency savings. With the leftover money, figure out how much you’d be comfortable paying monthly.
- Determine a repayment plan. You can suggest either a lump-sum payment or a monthly payment plan. Companies typically prefer a lump-sum payment, but if that’s not possible, they may be open to a monthly plan where you chip away at the balance over time. And if you don’t think you’ll be able to pay back the entire balance, you can try to settle the debt for less than the full amount.
- Request help if needed. Credit and debt solutions are available if you need help managing your debt. They can help you negotiate or work out a settlement of your debt. These debt relief solutions may offer initial help for free or at a low cost. Refer to the Department of Justice or the National Foundation for Credit Counseling’s websites to find approved credit counseling agencies..
- Communicate with the collections agency. Once you’ve figured out how much you can repay, propose the plan to the agency in writing.
While most states have a statute of limitations on consumer debt, collection agencies can still try to collect the debt even after the statute of limitations has passed.
So why is the statute of limitations important? After the statute of limitations has passed, a collections company cannot try and take legal action against you or sue you. The statute of limitations for debt varies by state, so you’ll want to read up on your state’s laws. According to the CFPB, most states have statutes of limitations between three and six years for debt.
Effect of Debt Collection on Credit Scores
Once you’re 30 days late or more on your credit card payments, those payments will appear on your credit report within a month or two of being late.
If your debt is in collections, it is likely that your unpaid debt will appear as delinquent. It may even have what’s called a charge-off on your credit report. A charge-off means that the original creditor (in this case, the credit card issuer) has written off your account as a loss. If your debt appears as a charge-off on your report, you’re still responsible for paying off your debt to the collections agency.
How Debt Collectors Report to Credit Bureaus
Late payments won’t negatively impact your credit report and score forever. However, they can stay on your credit report for a long time. Old debt can remain on your report for up to seven years.
For Equifax, TransUnion, and Experian, a customer’s collection account will typically be removed seven years after the first missed payment to the initial lender. However, the negative impact of delinquent payments on your credit score will lessen over time if you pay it off before the seven-year period ends.
Seeking Legal Help in Debt Management
When a debt collector serves you with a lawsuit, paying attention to it is important. Debt collectors typically won’t immediately jump to serving you a lawsuit. This is because it can be costly, but keep in mind that it can still happen.
If you are sued, it’s important to respond to it. You can respond by filing a proper answer in court where you were sued. In that answer, you would either admit or deny the claims. If you don’t, the court could rule in favor of the lender and issue a judgment against you. Collectors could then take action against you, such as garnishing your wages and freezing funds in your bank account.
If you are served, consider getting expert legal advice from an attorney specializing in consumer and credit card debt relief. A debt help attorney can help you decide whether to settle out of court or pursue legal action.
At Tayne Law Group, we have decades of experience in debt resolution of credit cards and the settlement process. We can help provide relief from plaguing debt problems. You can book a free phone consultation to determine your eligibility for help. Call us now at (631) 470-8204 or fill out our contact form, and we’ll be in touch. We never sell or share any information. All calls are confidential.
