What to Do if Your Unpaid Debt Is in Collections

When a debt collector calls, stop and think before you act. You have ways to get the facts, protect your rights and choose the best way to deal with your unpaid debt.
Paying Off Debt, Personal Finance
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What to Do If Your Unpaid Debt Is in Collections

Sometimes a bill goes unpaid. Maybe you didn’t have enough money to pay your utilities and decided to face the consequences later. Perhaps a medical bill got lost in a pile of mail, or you moved and the post office didn’t forward it.

Regardless of why your debt went into collections, it’s important to deal with the collection notice. If you don’t, you could wind up in court. Here’s what to do if an unpaid debt goes into collections.

How debts end up in collections

When a debt goes unpaid for a period of time, usually starting 30 days after the due date, it may be reported as delinquent. You’ll get notices and possibly calls seeking payment. At some point, usually after 180 days, the creditor — such as a credit card company, bank or medical provider — gives up on trying to collect.

If your debt is sold, you’ll start getting debt collection notices from a different company.

The original creditor may then sell the debt to a collections agency to recoup losses. It may get only pennies on the dollar, but that’s seen as better than having an old debt on the books and getting nothing.

If your debt is sold, you’ll start getting debt collection notices from a different company. It’s the same debt, and you still owe payment — it’s just that a third party has bought the right to collect.

Dealing with your collections account

Don’t make any rash decisions when dealing with a debt collector; you might end up making your situation worse. Follow these steps:

1. Get the facts: You have the right to receive debt validation and debt verification letters; use it. You should receive a validation letter from the debt collector within five days of first contact. Check it over for details about the age, amount and history of the debt, and information on who’s trying to collect. Consult your own records — including your credit reports — to corroborate details of the account. If you need further information, request a debt verification letter.

2. Know your rights: Learn about your consumer rights under the Fair Debt Collection Practices Act so you know what collectors aren’t allowed to do — such as calling you at unreasonable times, threatening you with arrest or using obscenities. Some states have even more protections for consumers; find your state’s laws online or contact your attorney general’s office to learn more.

3. Find your route: The two most common ways to handle a debt in collections are choosing a payoff method or disputing the debt as being in error.

  • There are a few options for paying a collections account. No matter which you choose, do not give the collector permission to access your bank account, either by providing your debit card number or setting up automated debits. If you make an agreement for a payment plan or to settle the debt for less than owed, get the agreement in writing so you can hold the collector accountable.
  • You can dispute the debt if it’s not yours or if you already paid it off. The agency must stop collection efforts and investigate. During this time, it can’t put the issue on your credit reports. If it finds the debt valid, the collector will mail you documents verifying the bill. If not, it will stop attempting to collect the debt.

Whichever route you pursue, understand the best strategies for dealing with debt collectors.

>>MORE: 3 Steps to Paying Off Debt

Collections accounts and your credit

In general, collections will remain on your credit reports for seven years from the point the account originally became delinquent. The exception is medical bills that go into collections but are later paid by an insurer; those drop off your credit reports upon being paid.

Some of the newer scoring models — such as VantageScore 3.0 and FICO 9 — ignore collections that have been paid. But FICO 8 credit scores, the ones most widely used in lending decisions, will consider even paid-off collections if the original debt was over $100.

Collections showing on your credit reports will hurt your credit, but the effect will lessen over time.

Like other negative marks, collections showing on your credit reports will hurt your credit, but the effect will lessen over time. There are a few ways to get a collections account off your credit report, however.

Collections and court judgments

Unpaid collections accounts may eventually land you in court — or at least with a court summons. Lawsuits for collections accounts are a common and efficient way for collection agencies to get payment. Never ignore a court summons about debt. These lawsuits can result in wage garnishment, a bank levy or a lien on your property.

Never ignore a court summons about debt.

Each state has a statute of limitations for debt, after which you can no longer be legally sued for payment. Note, however, that the debt itself does not expire, and collectors can still contact you about it — they just cannot sue.

NerdWallet writer Emily Starbuck Crone contributed to this report.

Updated Oct. 19, 2017.

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