{"id":25547,"date":"2023-04-13T12:43:36","date_gmt":"2023-04-13T17:43:36","guid":{"rendered":"https:\/\/www.avant.com\/blog\/personal-finance\/how-to-prepare-for-recession-copy\/"},"modified":"2023-04-25T16:34:03","modified_gmt":"2023-04-25T21:34:03","slug":"what-happens-when-a-bill-goes-to-collections","status":"publish","type":"post","link":"https:\/\/www.avant.com\/blog\/borrow\/what-happens-when-a-bill-goes-to-collections\/","title":{"rendered":"What Happens When Debt Goes to Collections?"},"content":{"rendered":"

Anyone who has fallen behind on credit card payments, or loan payments, or other types of outstanding debt, may find their outstanding balance transferred to a debt collector. A debt collector is typically a person or agency paid by creditors to collect on certain past due debts. Having an account sent to collections can be stressful. It may include receiving regular phone calls and letters from the debt collector.<\/span><\/p>\n

It is important not to panic if you find yourself in this situation. Rather, take a moment to understand how debt collection works, what rights you have, and what options are available to you. Here is what you need to know to move financially forward.<\/span><\/p>\n

What is Collections?<\/b><\/h2>\n

Debt collections happen when an unpaid debt gets assigned to a debt collector. Debt collectors are often third-party companies or agencies that work on behalf of another company to collect debts. If working for the original creditor, the debt collector will receive a percentage of the debt collected. Otherwise, the debt can be sold to a debt collection agency for pennies on the dollar after you fail to pay back the debt to the original creditor. The agency will then pursue you for the debt.<\/span><\/p>\n

When Does an Account Go to Collections?<\/b><\/h2>\n

There is no \u2018set rule\u2019 on how long it takes for your debt to go to collections. The only thing for certain is that the clock starts ticking on the debt being turned over to a collections agency the moment you don\u2019t pay a bill. It also depends on the type of loan. Generally, credit card debt that remains unpaid longer than 30 days is turned over to a collection agency. Foreclosures or unpaid mortgages can take much longer and are dependent on laws in the state they were issued.<\/span><\/p>\n

In most cases, lenders will try to collect the debt themselves before resorting to writing it off and passing the collection to another party. The debt is then reported to the credit bureaus as a \u201ccharge off,\u201d meaning the original creditor has ceased efforts to recover the debt. After a debt is canceled, the creditor may send you a <\/span>Form 1099-C<\/span><\/a>, Cancellation of Debt showing the amount of cancellation of debt and the date of cancellation, among other things. Be sure to have this form handy when you are filing your taxes.<\/span><\/p>\n

How Collections Works: What Happens When You Get Sent to Collections<\/b><\/h2>\n

Debt collection might vary slightly based on the company that\u2019s collecting a debt. However, the process is basically the same. If you have unpaid past-due debt, your original creditor will typically notify you through written notices and phone calls. If you have a credit card that you stopped paying, your lender will make an attempt to contact you to get the amount current. If they are unsuccessful in getting you to pay what you owe, it will eventually stop. That\u2019s usually when the debt transfers to collections.<\/span><\/p>\n

The debt collection agency will then use the information on file to contact you. They may use your current address, your phone numbers and even contact information for your relatives. Personal banking information, including savings and investment accounts, may also be used to determine if you have the money to repay a debt. Some states allow wage garnishment to collect old debts.<\/span><\/p>\n

Reputable Debt Collection Agencies vs. Scammers<\/b><\/h3>\n

Be very careful if you are ever contacted by someone who claims to be from a debt collection agency. Some scammers are known to masquerade as debt collectors. Never rush to make payments to any debt collector if you don\u2019t recognize the debt they\u2019re trying to collect. If you suspect you\u2019re being scammed, ask for a company name and contact number. Then check with your original creditor to see if they have assigned the debt to a collection agency.<\/span><\/p>\n

Reputable debt collection agencies will send letters to the address you gave your creditors. If there\u2019s a way to see that you\u2019ve moved, agencies can send letters to your new address in an attempt to collect a debt. Whether agencies send you letters or call, they\u2019re required to give you specific details about your debt, including:<\/span><\/p>\n