Understanding the Debt Collection Process

Understanding the Debt Collection Process

Many of us have had the experience of opening a letter or answering a phone call only to be greeted with those most terrifying of words, “this is an attempt to collect a debt.” Almost immediately your heart begins to thump a little faster, beads of sweat starting to form on your brow, your eyes start darting from side to side, scanning for a debt collector possibly hiding in the shadows. Your mind starts racing with a thousand questions like, “what happens now? Will I be sued? Will my wages be garnished? Will I lose all my stuff? Am I going to jail?”

Admittedly these are all frightening questions; however, it is very unlikely that being in collections is the end of the world. And to calm your fears, keep reading to get a better understanding of what it means to be in collections, the collections process, and your options and rights while you are in collections.

What does it mean to be in collections?

According to Credit Karma, being in collections means that a creditor that you have conducted business with, has sent or more specifically sold your account to a third-party company or person. This third-part entity is known as a collection agency. You are now officially in collections. Now the third-party entity will try to collect on the debt usually contacting you via mail, email, in-person, and/or phone calls. Phone calls are the collection agency’s preferred method of contacting a debtor.

All manner of debts can be sold to third-party collection agencies; however, the most common types include credit card debts, medical bills, utility bills, loans (both business and personal), student loans, or cell phone bills to name but a few. There is no limit to how many accounts associated with you can be placed in collections. Basically, if you are delinquent in payments or if you have simply stopped making payments, the creditor holding that debt can legally sell it to a third-party collection agency. The more accounts you fall behind on; the more accounts can be placed in collections.

How does having an account that goes into collection affect my credit score?

So now you have an account or two that has been placed with a collection agency. The big question here is how does having an account that is sent to collections affect a person’s credit score. The plain, simple, straightforward answer is that an account that has gone into collections will negatively impact your credit score, every time! The more accounts that get sent to collections, the more negatively your credit score is impacted. The silver lining here is that not all collection accounts on your credit history are created equal.

According to Credit Sesame, collection accounts that have been on your credit report for less than two years have the most negative impact. Older collection accounts that appear on your credit history still have a negative impact, but it is far less than the ones of the 24 month and under variety. Ideally, it is best practice to not let your accounts get to the collections phase; however, if they do, the sooner you do something to resolve them, the quicker your credit score can start to heal.

How long do negative accounts remain on my credit history?

You have begrudgingly accepted the fact that you now have accounts (assuming you have more than one) in collections and they are negatively impacting your credit score. The next big question that should come to mind is just how long will each of these negative impacting accounts remain on your credit history report? Generally speaking, negative accounts will remain on a person’s credit report for an average of seven years from the date of the account’s reported delinquency, according to Credit Sesame.

However, if you do have negative accounts on your credit report, you should do a little due diligence and check the statute of limitations for the state you live in; each state may have different lengths of time that negative accounts can remain on your credit report. Also, and this is very important, where the account was first opened (the state you lived in) is where the account falls under the statute of limitations.

For example, if you opened a credit card account while living in Georgia that goes into collections, but you now live in Texas — it is the statute of limitations from Georgia that apply to that account, not Texas.

What can I expect while having accounts in collections?

You now have accounts in collection, what can you expect? While having accounts in collections you can expect to be contacted, via mail, text, email, and/or phone calls, by the collection agency that now owns that debt. Most debt collectors prefer, almost to the point of obsession, the phone call. They will call whatever phone number they can find. They will call your home, your family, your friends, your employer (past and present). They will leave messages or not. They will call several times a day and will continue to call. The phone will be accompanied by the letter stating that “this is an attempt to collect a debt.” The debt collection agency is hoping to push you into paying this debt off, going so far as offering you potentially great discounts!

Do I have to pay a collection agency?

Well, I cannot tell you that. You must make your own decision as to whether you will work with and pay a collection agency. But before you do decide to pay, here is a little background on how the collection agency makes money. The collection agency buys debts from original creditors for pennies on the dollar!

Let’s say your original debt was $600. The original creditor then sold that debt to the third-party collection agency for $60. Now the collection agency is offering you a pay-off amount of $300, a 50% savings on the original debt. Sounds like a good deal for you and if you take it the collection agency makes a cool $240 profit. Keep in mind that paying it would end the collection letters and calls but it may not necessarily remove the negative account from your credit report — at least not immediately. Always remember that you have rights throughout this process and collection agencies must follow the law when attempting to collect a debt.

What is the fair debt collections act?

The collection process is not a one-sided affair by any means. There are rules and laws that collection agencies must follow. And if they don’t you do have certain legal recourses to take against them — that being the Fair Debt Collection Practices Act.

Going into great detail about this piece of legislation is beyond the scope of this article, however, I will give you some basics and broad overviews. Basically, a collection agency is not allowed to harass you in the attempt to collect the debt (at this point it should be noted that the debt is only alleged). You have the right to request the collection agency prove (in writing) that the alleged debt belongs to you. You have the right to demand that the collection agency not contact yourself, family, friends, or employers by telephone (this includes cell phones). You also have the right to demand that the collection agency not report any negative accounts to the three major credit bureaus. And if they already have, you can demand they immediately remove those negative reports.

All of this should be done in writing (not email) and tracked with certified mail. Also keep a record of all phone calls with day, time, and any other information. The reason for this is if they should sue you and you go to court, you now have evidence. There are financial penalties that the collection agency accrues for each violation of the Fair Debt Collection Practices Act.


Receiving a letter or a phone from a collection agency can be a downright terrifying event. No one likes to be hounded and hassled over a debt — especially when the very existence of the debt is in question. There is hope though. The Fair Debt Collection Practices Act levels the playing field by protecting consumers from harassing and intimidating collection practices employed by the less than reputable third-party collection agencies.

Obviously, the best way to avoid this is to keep all your accounts current with the respective creditors. And if you should fall on hard times, contact your creditors. They are far more likely to work with you if you are up front and communicate with them. Sticking your head in the sand to avoid your responsibility or an uncomfortable or embarrassing conversation is not a realistic solution. Everyone faces struggles from time to time. Just remember to keep moving forward because this to will pass.