When an original creditor decides a debt is uncollectable, it may opt to sell it to a third-party debt collector. The creditor will inform the credit bureaus that your account was “charged off.”
If your account is charged off and sold, the resulting negative mark stays on your credit reports for seven years — although a change coming on July 1 will remove judgments and some tax liens from credit reports.
Third-party debt collectors buy up debt for pennies on the dollar and then try to recover as much of the debt as possible to recoup their investment.
Sometimes, a collector will contact you for payment on a bill that’s several years old, a so-called zombie debt. Take extra care when handling one of these debts, because paying even a dollar on an old bill can reset the statute of limitations and leave you vulnerable to a lawsuit.
What you can do: If a debt collector contacts you for payment on an old bill, first brush up on your consumer rights.
Next, be sure to validate the debt to verify that it’s the right amount. Mistakes can creep in as debts are sold and resold.
You have a few options to pay off a debt in collections, such as creating a payment plan, paying off the bill in one lump sum and settling the debt for less than what you owe. Each option has pros and cons, so review them carefully before you act.
Learn more: Click on another stage in the debt timeline below, or return to the introduction.