Consumer debt in the U.S. soared to an all-time high in 2020—reaching nearly $14.9 trillion, according to Experian data. Some of that debt is in the hands of debt collectors, with a study released by the Urban Institute last year estimating that debt in collections showed up on the credit reports of 30% of American adults who had credit histories. Show
In some cases, a lender turns over your uncollected debt to a third-party collection agency or even sells it to a debt buyer. The agency or buyer will then try to recover at least some of the debt. In certain instances, if the holder of your debt isn't successful in getting a debt repaid, it may resell your debt to yet another collection agency. Read along to learn more about what happens to your debt when it's in collections. What Are Debt Collectors Not Allowed to Do?When a debt collector is trying to collect money from you, such as delinquent debt from credit cards, medical bills or auto loans, the Fair Debt Collection Practices Act (FDCPA) is in your corner. The federal law prevents a debt collector from:
When a debt collector violates the FDCPA, you can take the collector to court. If the court rules in your favor, you may receive monetary damages, repayment of legal fees and more. A statute of limitations governs how long negative information about debt in collections stays on your credit report. Under the FDCPA, a negative mark related to uncollected debt can remain on your credit report for seven years from the time the debt first became delinquent. There's another debt-related statute of limitations to consider. This one restricts the window of time during which a lender or debt collector can sue you in an attempt to recover money from you. The statute of limitations varies from state to state, but it's generally three to six years. Can a Collection Agency Report Old Debt as New?If a collection agency has been unable to recover money from you, it can resell the debt to another collection agency. However, the debt will retain the original date of the delinquency. Therefore, the collection agency cannot report old debt as new debt. Let's say the original delinquency date occurred in 2018 but the debt was resold in 2019. In that scenario, the original delinquency date would remain in 2018, not 2019. Even though
the debt was sold a year after the account first became delinquent, the amount of time that this negative item appears on your credit report is not extended. How to Deal With Accounts in CollectionsDo you have an account in collections? If so, don't panic—but don't ignore the debt, either. Here are four tips for dealing with an account in collections:
The Bottom LineWhile there are many things you'd rather think about than unpaid debt, it can ease your mind—and your wallet—if you take care of the debt as soon as possible. To keep track of any debt that may be in collections, remember to obtain a free credit report from Experian. Do you have to pay debt that was sold to a collection agency?Unpaid debt doesn't go away. Until the debt is either paid or forgiven, you still owe the money. This is true even if it's a credit card debt that is sold to a collection agency and even if you think it's unfair.
What happens if my debt is sold to a collection agencies?If my debt was sold, do I have to pay it? Yes. If your debt is sold to a debt purchaser like a debt collection agency, you will owe the purchaser money, but you will not owe the original lender anything.
What is the best reason to dispute a collection?Accounts that are incorrectly reported as late or delinquent, such as by a collection agency or other creditor. Debts listed on your credit report more than once. Incorrect dates of payments or delinquencies. Accounts with an incorrect balance.
How can I get a collection removed without paying?There are 3 ways you can remove collections from your credit report without paying. 1) sending a Goodwill letter asking for forgiveness 2) disputing the collections yourself 3) working with a credit repair company like Credit Glory that can dispute it for you.
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