But then life got in the way — you had unexpected travel costs or you had to replace your AC unit — and you put all of that on your credit card bill, too. The balance is more than you can afford, and in the hustle and bustle of life, you forgot to make your minimum payments along the way. The thought of seeing how much of a hit the debacle is taking on your score makes your stomach turn.
This is a reality for millions of Americans. Having an account sent to collections can be stressful. But consumers have options — and rights — when going through the process. Debt collection is the process of unpaid debts getting assigned to a collections agency. These agencies then take responsibility for collecting the debt on behalf of the original company; or, sometimes, the agency buys the debt and then collects it on behalf of itself. According to Experian , lenders can collect debt in four ways:.
The amount of time that passes before the debt is released to collections depends on the type of loan. Unpaid credit card debt, for example, is typically turned over to an in-house collections agency after more than 30 days of remaining unpaid.
Realizing you have debt in collections can be scary. Leslie H. Tayne Esq. Tayne says a lot of her clients panic after receiving a debt collection letter. According to Tayne, collectors are well-trained and have the advantage in the situation, whereas consumers are disadvantaged and may be cornered into an obligation to pay the debt in full.
Instead of immediately calling to try and resolve the issue, she recommends consumers take a moment to evaluate the situation and the path of resolution they want to go on.
What financial position am I in to pay this debt? What am I prepared to discuss on the phone? If you know the debt is yours, you do have the opportunity to negotiate a settlement. Keep in mind that debt falls under a statute of limitations in each state. This means a collector cannot sue you for a debt that is older than a certain number of years, which the CFPB says ranges from three to six years, depending on the state.
If the debt is close to the end of the limitations, the collector might be more willing to negotiate with you. If you are unsure of whether the statute of limitations has passed, the CFPB recommends contacting an attorney in your state.
Collections and court judgments. The road to debt collections is long. It starts when a debt goes unpaid for a period of time, usually starting 30 days after the due date. The overdue payment may be reported as delinquent. At some point, usually after days, the creditor — such as a credit card company, bank or medical provider — gives up on trying to collect. The original creditor may then sell the debt to a collections agency to recoup losses.
Don't make any rash decisions when dealing with a debt collector; you might end up making your situation worse. Follow these steps:. 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. The arbitrator will weigh the evidence, such as proof that you paid all or some of the debt, and listen to both sides of the story before issuing a ruling. If the situation with a debt collector gets messy—particularly if the debt collector is suing you—then you might want to hire an attorney to represent you.
Once you hand the matter over to an attorney, all communication must be between the debt collector and the attorney. Another option: Ask for help from a nonprofit credit counseling service. A credit counselor can work with you on a debt payment plan and a household budget.
Don't delay in seeking help, though, as waiting too long could land you in court. In some cases, a debt collector might take you to court and request that a judge order you to pay the debt.
You can represent yourself in court or hire an attorney. As part of the legal case, the debt collector must show that the debt is valid and that you're the one who owes it. Based on that and other evidence, a judge will rule whether you do or do not owe the debt. While it's scary to go to court, it's not wise to ignore the lawsuit. In fact, ignoring a suit against you often worsens your situation. Typically, a judge will rule against you if you don't respond to the legal action.
That could let a debt collector:. To stay out of legal hot water, face the consequences rather than hoping the lawsuit will simply go away. On a positive note, a debt collector might not be able to take you to court over old debts. Debt collectors have a certain window of time to sue you. In most states, that window is three to six years. Once your overdue debt is handed over to an internal or external debt collector, this action probably will pop up on your credit reports.
A collection account on your credit can lead to a significant drop in your credit scores. It'll take seven years for accounts that have gone to collections to fall off your credit reports. How to Get Through the Collections Process When one of your debts winds up with a debt collector, you might feel helpless.
There are plenty of reasons to be hopeful, though. The way you react to this can empower you to come through this with your head held high:.
The purpose of this question submission tool is to provide general education on credit reporting. The Ask Experian team cannot respond to each question individually. You might be approved, but you'll be required to pay a higher interest rate to compensate for the increased risk of nonpayment. If you have a high credit card interest rate, paying your balance in full allows you to avoid expensive finance charges.
Other services, like cellphone or cable services, may require you to pay an upfront security deposit. On a positive note, you'll get your deposit returned or credited to your account as long as you pay on time each month. Some employers check credit reports on potential employees.
Having a collection on your credit report can keep you from getting hired, especially with financial jobs or upper-management-level jobs. In order to view your credit history as part of a background check, employers must receive your written permission. Employers also cannot turn you down for a job based on information in your credit report without giving you a copy of the report, just as lenders are required to do when rejecting a loan application.
Collectors can sue you for a debt of any amount. If they get a judgment against you, they also can ask the court to garnish your wages to enforce the judgment. Each state also has its own set of laws governing debt collections. Consumer Financial Protection Bureau. Federal Trade Commission. Actively scan device characteristics for identification. Use precise geolocation data. Select personalised content. Create a personalised content profile.
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