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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.
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:
- Contacting you before 8 a.m. or after 9 p.m. unless you let them.
- Reaching out to you at work if you're not allowed to be contacted there.
- Discussing your debt with anyone except you and your spouse, or an attorney representing you. A debt collector can, however, contact other people to obtain your phone number, address or workplace information.
- Harassing you. This includes hurling profanity at you or constantly bugging you by phone.
- Lying about details of your debt, such as misinforming you about how much money you owe or falsely claiming you're going to be arrested.
- Engaging in unfair practices, such as depositing a post-dated check ahead of time.
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 Collections
Do 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:
- Request that the debt collector stop contacting you. Under federal law, a debt collector typically must stop contacting you once you ask them to do so in writing. After your written request is received, a debt collector can only reach out to say you won't be contacted any longer or that you're being taken to court.
- Consider negotiating the debt. Believe it or not, debt collectors may agree to a lump-sum payment to settle the debt, or may work out a repayment plan with you. Ask what options are available to you.
- Figure out who gets the money. Before you pay a penny, be certain about who will get the debt payments. If the original lender is trying to collect the money, then your payments go to them. But if a debt collector is working on behalf of the lender or your debt has been sold to another debt collector, you'll make payments to the appropriate collector.
- Weigh whether to hire an attorney. If you and the debt collector can't resolve the situation, and especially if the debt collector threatens to sue you, you may want to enlist legal help.
The Bottom Line
While 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.