Ignoring a debt collector can lead to collection calls and letters, damage your credit score, and, in some cases, result in a lawsuit. If a creditor or collector wins a court judgment, wage garnishment or bank account levies may also be possible. However, the consequences vary by state, the age of the debt matters, and not every collection account ends up in court.
Here’s what you need to know about collections agencies, and how you can hopefully escape the frustrating cycle of debt.
Key Takeaways
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What Happens When a Debt Goes to Collections?
When you fall behind on a debt, the original creditor (such as a hospital, credit card company, utility company, or cell phone provider) may eventually transfer or sell your debt to a collection agency. At that point, the collection agency becomes responsible for recovering the money you owe.
Once a debt enters collections, you will start being contacted by a collections agency. These may include phone calls, letters, emails, and other forms of communication. The Consumer Financial Protection Bureau requires debt collectors to comply with federal and state laws governing how and when they may contact consumers.
In many cases, a collection account may also appear on your credit reports, which can negatively affect your credit score. This typically happens between 30 and 60 days after the collector obtains the debt. Once this happens, the mark will remain on your credit report for 7 years and may make it more difficult to qualify for loans, credit cards, housing, or favorable interest rates in the future.
Keep in mind that the amount you owe may continue to grow. Depending on the type of debt, your agreement with the original creditor, and state law, interest charges, late fees, and collection costs may continue to accrue while the debt remains unpaid.
Can a Collection Agency Sue You?
A collection agency can sue you for an unpaid debt. Lawsuits are a tool that creditors and debt collectors may use to recover money they believe is owed. Whether the creditor decides to sue is a case-by-case decision.
Credit card debt, personal loan debt, medical debt, and other consumer debts can all potentially lead to collection lawsuits, though practices vary by creditor, collector, and state.
If a collection agency files a lawsuit and wins a judgment against you, the court may grant additional collection remedies. Depending on your state’s laws, this could include wage garnishment, bank account levies, or liens against certain property. However, these actions typically require a court judgment first and are subject to state-specific rules and limitations.
Can a Collection Agency Take Money From Your Bank Account?
In many cases, a collection agency cannot simply take money directly from your bank account. Before that can happen, the collector typically must sue you in court and obtain a judgment for the debt.
If the collector wins the lawsuit, they may request a bank levy, which allows funds to be taken from your account to satisfy the judgment. The rules for bank levies vary by state, and not all collectors pursue this option.
Some sources of income or benefits may be protected under federal or state law. For example, certain Social Security benefits, veterans’ benefits, and other protected funds may be exempt. If you’re facing collections and currently receive government benefits or income, it may be worth reviewing your state’s laws or speaking with a qualified attorney to understand your rights.
How Long Can Debt Collectors Try to Collect?
The amount of time a debt collector can sue you for a debt is governed by your state’s statute of limitations. This is a legal deadline that determines how long a creditor or collection agency has to file a lawsuit. The time limit varies by state and by the type of debt involved.
Once the statute of limitations expires, the debt is often referred to as “time-barred debt.” Once the statute of limitations passes, debt collectors generally lose their ability to successfully sue you for it if you raise the statute of limitations as a defense in court. Keep in mind that debt collectors may still contact you and request payment on a time-barred debt, as long as they comply with applicable federal and state laws.
Also, note that lawsuit deadlines and credit reporting timelines aren’t the same. Most negative collection accounts will stay on your credit report for up to seven years, even if the statute of limitations for filing a lawsuit is shorter. Because these rules can be complex and vary by state, be sure to verify the age of the debt before making repayment decisions.
Can You Stop Debt Collectors From Contacting You?
Yes, consumers have rights under the Fair Debt Collection Practices Act (FDCPA). If you want a debt collector to stop contacting you, you can send a written request asking them to cease communication. Once the debt collector receives the request, they generally may only contact you to confirm they will stop communicating or to notify you of specific actions they may take, such as filing a lawsuit.
A cease-contact request can reduce the hassle of being inundated by debt collectors, but it doesn’t erase the debt or prevent all collection efforts. Reviewing the debt, understanding your rights, and exploring repayment or settlement options may still be necessary.
Should You Pay a Collection Agency or Ignore It?
Whether you should pay a collection agency depends on your specific situation. For many consumers, resolving a collection account can help prevent additional financial problems and provide peace of mind. However, there are also situations where it makes sense to pause before making a payment, especially if there are questions about the debt itself.
| Reasons to Pay a Collection Agency | Reasons to Pause Before Paying |
| Avoid potential lawsuits and court judgments | The debt may be inaccurate or belong to someone else |
| Resolve an outstanding balance | The debt may be beyond the statute of limitations |
| Potentially improve your credit profile over time | You may want to dispute the debt first |
| Stop collection calls and letters | Financial hardship may make immediate payment unrealistic |
| Potentially negotiate for less than the full amount | You may need to review your legal rights and options |
If the debt is legitimate and you can afford to pay, resolving it may help reduce stress and lower the risk of future collection activity. Some collection agencies may also be willing to negotiate for less than the full amount owed.
It’s important not to rush into a payment without verifying the details. Debt collection mistakes happen, and some debts may be too old for collectors to successfully sue over. If you’re unsure whether the debt is valid, request documentation and review your options before making a payment.
Related Article: Are Data Removal Services Worth It?
Can I still consolidate debt if I have a collection account?
Yes, it may still be possible to consolidate debt if you have an account in collections, but it can be more difficult. If you have an account in collections, it can often lower your credit score, and lenders may view your profile as higher risk.
Some lenders have strict underwriting requirements and may reject applicants with active collection accounts. Others may approve a loan but charge significantly higher rates to offset the perceived risk. Whether you qualify often depends on factors such as your credit score, income, debt-to-income ratio, and the size and age of the collection account.
There are a few things you can do in the meantime. For example, you can focus on consolidating other high-interest debts, negotiating with collectors, or improving your credit profile before reapplying. Consolidating eligible debts can simplify payments and help prevent additional accounts from falling into collections.
The key is to view consolidation as a tool in your debt payoff journey.
What Are Your Options If You Can’t Afford to Pay?
If you can’t afford to pay a collection account in full, you may still have options. Many collection agencies are willing to work with consumers who are experiencing financial hardship.
You may be able to set up a plan with smaller monthly payments or negotiate with the lender for less than the full amount owed. Some creditors and collectors also offer hardship programs that temporarily reduce payments or provide other forms of assistance.
Another option is nonprofit credit counseling. A certified credit counselor can review your finances and help you develop a plan for managing multiple debts.
If your debt has become overwhelming, bankruptcy may be a last resort. While it can significantly impact your credit, it may also provide legal protections and a path toward a fresh financial start.
The key is to act early. Exploring your options now may help you avoid additional fees, lawsuits, and further financial stress.
Further Reading
- Debt Consolidation with Bad Credit: What to Expect and How to Qualify
- Alternatives to Bankruptcy: Try This Option First
- Credit Card Debt Is Soaring. Here’s How You Can Escape It
- Millions of Car Owners Face Late Car Payment Difficulties
- How Late Can You Be on a Car Payment Before You Lose Your Car?
- Credit Card Debt Forgiveness: What’s Real and What’s a Scam
- Best Debt Consolidation Companies of the Year
