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The debt collection process
How it works, when you can be contacted and what you can do about it.
If you’re behind on your monthly payments for a loan, credit card or utility bill, a debt collector may get in touch with you about it. While dealing with an overdue debt can be overwhelming, it’s usually easier to manage when you understand the process.
What's in this guide?
What is the debt collection process?
The debt collection process varies based on your creditor, but in general, you can expect the following to happen:
- You receive a notice from your creditor that your account is past due. This is typically done by your creditor’s in-house collection department.
- Your creditor moves your account to a “charge off” status. This typically happens after 180 days of no payment. If this is a credit card account, you’ll no longer have access to use your card. And this negative mark will stay on your credit report for seven years.
- Your debt is sent to a collector. Your creditor hires a collection agency to help collect payment. It may even sell your debt to the agency, which means your creditor no longer has any involvement in the process going forward. You would be working solely with the collection agency to pay back the debt.
- The collector contacts you to verify your identity. They may do this by mail or phone — and this can even involve calling your friends, family or employer to verify your identity. However, they’re not legally allowed to discuss your debt with anyone but yourself.
- You receive a written debt validation notice from the collector. Once they’ve verified your identity, you’ll receive a letter within five days stating the original creditor, the amount owed and how to proceed.
- You continue to receive phone calls and letters. Until you agree to pay off the debt, your collector will continue to make phone calls and send letters to you.
- You talk to the collector and agree to pay back the debt. At this point, you can try to negotiate with the collector to pay less than the original amount owed.
- The collector closes your account. Once you pay off your debt to the collector, they close your account.
What happens if I don’t repay my debt?
If you don’t repay your debt, the collection agency might hire an attorney to sue you. You’ll receive a notice from the court system and an appearance date. If you don’t show up, you’ll lose by default and be legally responsible to pay.
When you do appear in court, both you and the collector make your case to the judge. They’ll then send out a judgment and decide if you need to pay back the debt or not. If you lose, you’ll likely be responsible for not only paying back your debt but other expenses like attorney fees, collection costs and interest. And your collector may garnish your wages or place a lien on your assets to recoup the amount your owe.
How will not repaying my debt hurt my credit score?
When a credit account goes to collections, your credit score will most definitely drop. How much depends on how high your credit score was in the first place. The collection account will stay on your credit report for seven years — even if you pay the collector.
However, this is changing soon with the new FICO 9 credit scoring model. With the latest update, your collection account will be deleted from your credit report once you pay it off. However, it might take some time for banks and other lenders to move to this new FICO 9 model.
When will a debt collector contact me?
Every credit provider has a different policy when it comes to overdue debts and debt collection. But generally, if you’re late with a payment, you won’t hear from a debt collector straight away. Instead, your provider may contact you by phone, email or letter reminding you of the debt and requesting payment.
If you haven’t responded to your provider or made a payment, they may then refer the account to a debt collector. This could be the case if you have a payment that’s more than 30 days overdue, but it’s more often done when your account is moved to a “charge off” status after 180 days of no payment.
Different types of debt collectors
Some providers and banks have their own, internal debt collection teams to help with overdue accounts. Others may pass the debts on to third-party debt collection companies (which is more common for larger debts that have been in default for several months). Whatever the case, you should be able to discuss a range of options for dealing with the debt in a way that’s manageable for you.
Compare debt relief companies
Before you sign up with a debt relief company
Debt relief companies typically charge a percentage of a customer’s debt or a monthly program fee for their services. And they aren’t always transparent about these costs or drawbacks that can negatively affect your credit score. You might pay other fees for third-party settlement services or setting up new accounts, which can leave you in a worse situation than when you signed up.
Consider alternatives before signing up with a debt relief company:
- Payment extensions. Companies you owe may be willing to extend your payment due date or put you on a longer payment plan if you ask.
- Nonprofit credit counseling. Look for free debt-management help from nonprofit organizations like the National Foundation for Credit Counseling.
- Debt settlement. If you can manage to pay a portion of the bill, offer the collection agency a one-time payment as a settlement. Collection agencies are often willing to accept a lower payment on your debt to close the account.
How to tell if a debt collector is legit
Receive a notice from a debt collector and wondering if it’s a scam? A few telltale signs can let you know if the person on the other end of the phone is a reputable debt collector.
What to look for in a reputable debt collector
- The company is easy to find. A reputable debt collection company will have a website, and it should be easy to find out where they’re headquartered.
- They validate the debt. If you ask a debt collector to validate the debt, they’ll send you a letter in the mail showing where the debt came from.
- Your original creditor can verify them. If you call the person or company you originally owed the debt to, they can confirm which collections agency the debt was sold to.
What to watch out for
- They won’t give you their contact information. If the caller refuses to disclose their name, company, street address, phone number and professional license number, they’re likely not operating above board.
- They won’t give you info about the debt. You have the right to ask the collector about the debt before you pay. If you don’t recognize the creditor they’re trying to collect for, then it may not be legit. You can write a letter to the collection agency for more information before paying to make sure it’s actually your debt.
- They threaten you with criminal charges. If the caller is claiming they’ll have you arrested if you don’t pay, they’re likely not a legit collector.
How will debt collectors contact me?
The most common way for debt collectors to contact you is via phone. However, they can also contact you by letter, in person or online through email. They can’t contact you before 8 a.m. or after 9 p.m. They’re also prohibited from repeatedly calling to annoy you, though the law doesn’t specify a number of times they’re allowed to call before it’s considered harassment.
Debt collectors are also advised to respect any reasonable requests you have for contact within specific hours and they can’t call you at work if you request or continue to call at all if you send in a letter requesting they stop. If you think a debt collector is contacting you too often, or not giving you an opportunity to respond, you can contact the company to complain or contact the Consumer Financial Protection Bureau.Back to top
Debt collectors and privacy
As well as recommendations around how often a debt collector can contact you, there are also regulations and requirements that help protect your right to privacy. For example, a debt collector is not allowed to give anyone else details about your financial situation or to reveal that they are a debt collector unless you give them permission to do so.
This means if a debt collector contacts you at home or work and you’re not there, they can’t tell anyone else about the situation. Similarly, if they contact you online, they have to be reasonably sure that no one else will see the information.
What can I do when debt collectors get involved?
If a debt collector contacts you, it’s ideal to respond to them as soon as possible so that you can deal with the overdue account. Depending on your circumstances, you may be able to consider some of the following options:
- Keep a record of the contact. Take note of when a debt collector has contacted you and what they said. This will help protect your right to privacy and may be used as evidence if you have to lodge a complaint.
- Explain your situation. Let the debt collector know why you haven’t made a payment. If you’re experiencing financial hardship, they may be able to offer you a payment plan without taking further action.
- Work out how much you can afford to pay. Debt collectors may suggest a repayment plan for you based on the amount that you owe. When that’s the case, make sure you can afford the repayments based on your current circumstances. If you can’t, suggest an amount that would be reasonable for you or ask about other options.
- Sign up for credit counseling. If you’re unsure of how to deal with your debt, consider getting professional advice from a nonprofit credit counseling agency.
How to find the right credit counseling agency
The Department of Justice has a list of government-approved nonprofit credit counseling agencies on its website that you can search by state. Once you’ve found one you’re interested in, check with your state’s attorney general to make sure there aren’t any complaints filed against it.
If it checks out, reach out to set up a consultation — typically these are free with legitimate agencies. Your counselor will help you come up with a plan to get on top of your finances from there.
How to find out which debt collection agency I owe
Know you have an account in collections but not sure exactly who you owe? There are a few ways to figure out what agency your debt was sold to:
- Check your credit report. Most debt collection agencies will report your debt to one — if not all — of the major credit bureaus: Experian, Equifax and TransUnion. Take a look at your credit report from each bureau — you can do this once a year for free — and you’ll likely see the name and phone number of the collector your debt was sold to.
- Contact your original creditor. Call the credit card issuer or other lender you originally had an account with and ask if your debt has been sold. If it has, it’ll be able to give you the name and contact information for the debt collection agency you now owe.
- Check your mail and voicemail. If your debt has been sold to a third-party agency, odds are you’ve received letters and voicemails from the collector trying to get you to pay. Debt validation notices should contain the contact information for the collector. If you just have a voicemail, try searching for the phone number online to figure out who the company is.
What if I'm contacted about a debt I don't owe?
If a debt collector has contacted you about a debt that you don’t think is yours, or if the amount of debt seems wrong, send a letter to ask for validation of the debt. Check these details against your own and then contact the provider to dispute the debt.
If necessary, provide copies of any additional details, such as payments you’ve made that aren’t recorded on your account. If the situation still isn’t resolved, you can seek professional advice from a nonprofit group, hire a lawyer or file a complaint with the CFPB if you feel that the collector is harassing you.
Dealing with overdue debts can be overwhelming, but there are many ways to get back on track. Understanding how the process works and being proactive by getting in touch with any debt collectors can help you take back control of your finances. However, if your debt situation worsens to a point where you no longer think you can handle it on your own, consider using a debt relief company to help you regain control of your finances.
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