Where Delinquent Debt Goes: Third
When you cant pay your debt, most creditors follow a similar process to increase their chances of persuading you to pay. One of the tools at their disposal is selling your debt to a third-party collection agency.
When a debt has been purchased in full by a collection agency, the new account owner will usually notify the debtor by phone or in writing. Selling or transferring debt from one creditor or collector to another can happen without your permission. However, it typically doesnt happen without your knowledge.
If you receive a debt validation letter, you may want to contact a not-for-profit consumer protection organization that can help you navigate the collections process, as it can get complicated and lengthy. For example, if a collector is unable to make satisfactory arrangements with a consumer after a few months, the individual debt may be bundled with many others and sold to another collection agency. That process can be repeated many times over, even beyond the applicable statute of limitations for the consumers debt.
Can A Collection Agency Sell Your Debt
Consumer debt in the U.S. soared to an all-time high in 2020reaching nearly $14.9 trillion, according to Experian data. Some of that debt is in the hands of debt collectors, with a study released by the Urban Institute last year estimating that debt in collections showed up on the credit reports of 30% of American adults who had credit histories.
In some cases, a lender turns over your uncollected debt to a third-party collection agency or even sells it to a debt buyer. The agency or buyer will then try to recover at least some of the debt. In certain instances, if the holder of your debt isn’t successful in getting a debt repaid, it may resell your debt to yet another collection agency.
Read along to learn more about what happens to your debt when it’s in collections.
What Happens After Your First Missed Payment
Though no one wants to miss a payment, it happens to most people eventually. Whether you forgot to set up automatic payments, or just mailed the check a day late, missing one payment isnt the end of the world. Just dont let it become a habit, or it could get costly.
Generally, when you miss your first credit card payment, the card issuer will assess a late payment fee. Generally, this fee is a flat amount between $25 and $50, or a small percentage of the amount you were supposed to pay. However, some lenders are forgiving for people who rarely miss a payment or who have never missed one before. If youre really concerned about late payment fees, look for a card that offers forgiveness for missed payments.
The other good news is that while there will be an impact on your , it isnt immediate. Your wont show the missed payment until the lender reports it to the credit agency. Again, some lenders are forgiving in this regard. If you make good on the payment quickly enough and its not a common occurrence, the late payment may not be reported.
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Try A Balance Transfer Card To Get Out Of Debt
If your debt has not gone to collections yet, one option to help you save tons on interest and pay it off more quickly is to use a balance transfer credit card that offers 0% interest for a certain length of time . The options below all require at least a good credit score, so they are usually only effective to use before your debt falls into delinquency.
The Citi Simplicity® Card lets you pay off debt over a long period, with a 0% intro APR for 21 months on balance transfers from date of first transfer .
Understand What Credit Repair Services Can And Cannot Do
Some companies offer credit repair services as part of qualified debt management or credit counseling plan. These services are designed to help consumers increase their credit score by identifying and correcting inaccuracies on a consumers credit report, as well as helping the consumer to reduce his debt to credit ratio. Credit repair services offered in conjunction with legitimate debt management or credit counseling services can help you better understand your credit history and how to better manage your credit. While legitimate credit repair services offered in conjunction with a reputable debt management or credit counseling service can benefit some consumers, you should avoid companies offering only credit repair services. Often, these companies lure consumers with exaggerated claims promising to erase negative credit history. Accurate account history, positive or negative, will stay on your credit report for at least seven years, and some things, such as bankruptcy, may stay on your report up to ten years later.
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Who A Debt Collector Can Contact
A debt collector can only contact your friends, employer, relatives or neighbours to get your telephone number or address.
This does not apply in the following cases:
- the person being contacted has guaranteed your loan
- your employer is contacted to confirm your employment
- you’ve given your consent to the financial institution that they can contact the person
If you gave consent orally to your financial institution, you must receive written confirmation of your consent either on paper or electronically.
What Are Debt Collectors Not Allowed To Do
When a debt collector is trying to collect money from you, such as delinquent debt from credit cards, medical bills or auto loans, the Fair Debt Collection Practices Act is in your corner. The federal law prevents a debt collector from:
- Contacting you before 8 a.m. or after 9 p.m. unless you let them.
- Reaching out to you at work if you’re not allowed to be contacted there.
- Discussing your debt with anyone except you and your spouse, or an attorney representing you. A debt collector can, however, contact other people to obtain your phone number, address or workplace information.
- Harassing you. This includes hurling profanity at you or constantly bugging you by phone.
- Lying about details of your debt, such as misinforming you about how much money you owe or falsely claiming you’re going to be arrested.
- Engaging in unfair practices, such as depositing a post-dated check ahead of time.
When a debt collector violates the FDCPA, you can take the collector to court. If the court rules in your favor, you may receive monetary damages, repayment of legal fees and more.
A statute of limitations governs how long negative information about debt in collections stays on your . Under the FDCPA, a negative mark related to uncollected debt can remain on your credit report for seven years from the time the debt first became delinquent.
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Threaten To Have You Arrested
Collection agencies cannot falsely claim that you have committed a crime or say you will be arrested if you dont repay the money they say you owe.
First of all, the agencies cannot issue arrest warrants or have you put in jail. Furthermore, failing to repay a credit card debt, mortgage, car loan, or medical bill in a timely manner doesn’t land you in prison.
That said, if you receive a legitimate order to appear in court on a matter related to a debt and you dont show up, the judge could issue a warrant for your arrest. And, if you fail to pay a court fine related to your debt, or refuse to pay taxes or child support, you could go to jail.
5 Things Debt Collectors Are Forbidden To Do
Try To Collect Debt You Dont Owe
Some debt collectors will knowingly or unknowingly rely on incorrect information to try to get money out of you.
The creditor you originally owed money may have sold your debt to a collection agency, which in turn may have sold it to another collection agency. A mistake somewhere along the way could mean that the collector contacting you has incorrect information.
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Filing Bankruptcy To Eliminate Credit Card Debt
People want to avoid bankruptcy. Creditors and debt collectors know that. But spooking someone into it by hitting up the roof over the head is a sure fire way to send someone right to a bankruptcy attorney.
If you qualify for chapter 7 it most often wipes out any unsecured creditor claims.
If you have too much equity in your home to file a chapter 7 in your state and want to keep the home, you can file a chapter thirteen where the unsecured creditor is likely going to get paid far less than 100% of what they are owed In some instances as little as 10%.
If you have income, assets, and property to protect than I would encourage you to put together a plan to settle with creditors in order to avoid any of the bullet items above.
Break down your credit card debt for me in a comment reply below. List them out by the name of the creditor and the amount owed . I can provide some additional feedback and risk exposure that you are concerned about.
Any reader with similar concerns can post questions and get feedback below.
At A Glance: How Credit Scores Factor In Collection Accounts
|
VantageScore |
||
|---|---|---|
|
Ignores medical collection accounts that are less than six months old Weighs unpaid medical collection accounts less heavily than other types of collection accounts |
Ignores small-dollar nuisance accounts that had an original balance of less than $100 Treats medical collection accounts, including those with a zero balance, like other collection accounts |
Ignores paid collection accounts Weighs unpaid medical collections less heavily than other types of collection accounts |
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What Happens After Your Second And Third Missed Payments
If you miss two or three consecutive payments, things start to get bad.
Youll be assessed late payment fees for each missed payment. This can easily run into the hundreds of dollars, piling more debt on to your existing balance.
Payments that are late for 60 or 90 days also have a significant impact on your credit score. Late payments that show up on your report are divided into categories based on how late the payment is. Obviously, the later the payment, the bigger the impact on your score.
Just one payment that is 90+ days late can cause your score to plummet. If you have a score above 750, one such late payment could drop your score by 80-100 points. Thats enough to disqualify you for many loans and majorly affect the interest rates you can get on loans you do qualify for.
Check Your Credit Report
If you are wrongfully pursued by a debt buyer, you should obtain a free copy of your credit report to find out whether the original creditor or the debt buyer has reported the debt to the credit reporting agencies. To obtain your free credit report, go to www.annualcreditreport.com, or call 322-8228. If there are inaccuracies on your credit report, you have certain rights under federal law to correct the mistakes.
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What Rules Must Debt Collectors Obey
A debt collector may not harass or abuse anyone. For instance, a debt collector may not use threats of violence against the person, property or reputation use obscene or profane language advertise the debt or repeatedly or continuously make telephone calls with the intent to harass or abuse the person at the called number. In addition, debt collectors are required to accurately disclose their identities to the person at the called number. A debt collector may not use false statements, such as falsely implying that they are attorneys, that you have committed a crime or that they operate or work for a credit bureau or misrepresenting the amount of your debt, the involvement of an attorney in collecting a debt or indicating that papers sent to you are legal forms when they are not. Debt collectors may not tell you that you will be arrested if you do not pay that they will seize, garnish, attach or sell your property or wages unless the collection agency or creditor intends to do so and has a legal right to do so or that a lawsuit will be filed against you, when they have no legal right to file or do not intend to file such a suit.
Make A Debt Management Plan Work For You
Continue to pay your bills until the plan has been approved by your creditors. If you stop making payments before your creditors have accepted you into a plan, you’ll face late fees, penalties and negative entries on your credit report. Contact your creditors and confirm that they have accepted the proposed plan before you send any payments to the credit counseling organization for your debt management plan. Make sure the organizations payment schedule allows your debts to be paid before they are due each month. Call each of your creditors on the first of every month to make sure the agency has paid them on time. Review monthly statements from your creditors to make sure they have received your payments. If your debt management plan depends on your creditors agreeing to lower or eliminate interest and finance charges, or waive late fees, make sure these concessions are reflected on your statements.
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What Happens To Your Credit Score
Once your creditor transfers your debt to a collection agency, your credit score will go down.
A low credit score means:
- lenders may refuse you credit or charge you a higher interest rate
- insurance companies may charge you more for insurance
- landlords may refuse to rent to you or charge you more for rent
- employers may not hire you
Who Is Harassing You
If youre being harassed by a creditor it’s important to know who is asking for payment. They may not be the people you originally owed money to. This is because your original creditor is allowed to pass the debt onto someone else to collect. If your original creditor does this, they can no longer chase you for money. If your creditor decides to pass the debt on, they must tell you in writing before they do it.
Your debt may be collected by:
- your original creditor
- a debt collection agency acting on behalf of your creditor
- a third party who has bought the debt from your creditor
- bailiffs in England and Wales or sheriff officers in Scotland.
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Strategies When Accounts Are 6 Months + Overdue
Once your account has been unpaid for six months or more, your creditor has several options and will do one of the following:
- Continue collection efforts using its in-house collection department
- Hire a collection agency to collect your account on a commission basis
- Sue you
- Sell your outstanding account
Collectors Can Come To Your House
Most creditors will mail letters and make phone calls in attempts to collect. Sending an actual person is much more expensive, which probably doesnt justify that cost.
Just like anybody else, theyre allowed to knock on your door and ask questions, though. Federal law and the Fair Debt Collection Practices Act , in particular, do not prohibit bill collectors from visiting in-person. However, they need to follow certain rules, some of which are specific to debt collection and others that are more general in nature. For example, nobody is allowed to threaten you or damage your property.
Debt collectors can’t come to your home during unusual hours, defined as before 8 a.m. or after 9 p.m., nor can they do it in a way that they know will be inconvenient for you.
If they do show up, theres hardly anything most debt collectors can do besides ask you for money. Your worst fears about collectors backing up a truck and loading it with your valuables are extremely unlikely to materialize.
In some cases, debt collectors say theyre going to come to your residence, but they have no intention of doing so, making it an empty threat.
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How They Find You
Because an in-person visit is unlikely and you can just ask them to leave, you dont need to go out of your way to hide your location. But dedicated individuals may show up if its worth it to them financially. Debt collectors get your address and other useful information from a variety of public and private databases. Companies you do business with might sell your information, while county and voter records are available to just about anybody. The only way to stay hidden is to go completely off the grid, but its easier just to send a written request asking collectors to leave you alone.
Can I Lose My House To Credit Card Companies
While it is possible to lose your house due to credit card debt, it ultimately depends on a few things like how much credit card debt you have, how behind on payments you are, and what state you live in. Depending on your debt amount, you might be able to negotiate an agreement with your creditor that could make it easier to resolve your debt. Some states also include provisions that prevent credit card companies from seizing your primary residence in the case of late payments.
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