debt collection

Whether you know the collection calls will be coming, or you’ve just been blindsided by a debt collector, the process can be undeniably intimidating. Arming yourself with a few facts about how the process works, as well as understanding your rights, can help.

Let’s start with the basics. Here’s how it can work: 

  1. An account in your name has become past due and the original creditor thinks they will be unable to collect payment. (Usually when it reaches the 180-plus day mark.)
  2. The creditor sells the debt to a debt collection company, generally for a portion of the amount due. Since the debt has now switched hands, the debt collection agency is able to keep whatever they manage to collect.
  3. The debt collector will now begin attempts to collect payment from you through phone calls and letters.
  4. You can request identifying information about the debt by both the collection agency and the original creditor.
  5. Depending on the information you discover and what the collector offers, you can either try to negotiate a payment plan, pay in one lump sum, or dispute the debt altogether. 

[Learn more about what happens when your debt is sold to a debt collector.

Debt Collection and Your Credit Report 

Once your debt has been officially sold to a debt collector, you may see two things on your credit report.

  • The original creditor can close your account and mark it as “charged off,” meaning it has a long-standing delinquency. This charge-off will likely appear on your credit report as a negative item.
    [Discover exactly what a “charge-off” could mean for your credit.]
  • Depending on the type of debt, the collections agency that purchased the debt will likely report a new negative account in your name to the credit bureaus. This can happen immediately after the debt is purchased. 

The effect debt collection can have your credit score depends on a few factors, such as the health of your score before the debt became delinquent and the size of the debt in collections. Some credit scoring models won’t take any collections into account that are under $100, and some will place more weight on the type of debt. For instance, medical debt could be treated more favorably than credit card debt.

It’s also important to note that not all creditors will report delinquent accounts to credit bureaus (there is a fee for doing so). These creditors can include credit unions, utility companies, landlords, hospitals, and insurance companies, to name a few. If they don’t report, your credit won’t be impacted.

[Get more info about debt collection and your credit report.]

Now that you know what you could be up against, let’s get to the bottom of how you can handle it by yourself and some parameters for debt collection.

How to Deal with Debt Collectors 

If the debt collector(s) have started calling, here are a few steps to consider taking.

  • Start with a conversation.
    Your first instinct might be to ignore any communication attempts by the collection agency, but ignoring the matter isn’t going to make it go away. To take care of the matter and repair your credit – or confirm the debt isn’t actually owed – it’s helpful to start with a conversation. During this call consider asking for written confirmation of who the original creditor was; the original amount owed, plus any fees that were added on; and how their debt collection process works.
  • Confirm the information is accurate.
    While the original creditor may not have access to old debt records, it’s a good idea to ask if they can provide confirmation the debt was in fact sold and to whom, as well as the amount owed. If they have it and the information checks out, but you don’t believe you owe the debt, ask for written confirmation from the original creditor.
  • Start negotiating OR disputing the debt.
    Once you’ve confirmed the validity of the debt, you can begin to negotiate with the debt collector . Keep reading for tips and tricks to help the process.

Confirmed the debt isn’t in fact valid? We’ll get into the dispute process later.  

[Get more information on how to deal with a debt collector.]

How to negotiate 

  • Know your rights.
    Some federal and state laws place  time restrictions on certain types of debt Also, the primary credit reporting bureaus have a time limit on how long certain defaulted credit lines  can stay on your report (generally 7-10 years), meaning it should fall off your credit report after that time. If the debt the collection agency is attempting to collect debt that is at, or close, to this 7-10 year time frame, there may be less incentive for you to pay and more incentive for them to negotiate.
  • See if they’ll accept a lower amount.
    Remember, collections agencies likely paid less to purchase your debt than what was originally owed. This means there could be some wiggle room when it comes to the size of the payment they are willing to accept – especially if you are able to make a lump sum payment.
  • Don’t be intimidated.
    Not all collection agencies use tactics to harass and intimidate, in fact, there are laws against that. Still, it does happen, so it’s important to be prepared if they do. Familiarize yourself with your rights, know what debt collectors can and can’t do, and don’t be afraid to collect all the information you need before agreeing to anything.
  • Document everything and get it in writing.
    If you reach the end of your negotiations with a debt collection agency and they agree to a settlement amount, payment plan terms, or anything else, it’s a good rule of thumb to ask for it in writing. Also, keep written documentation of who you spoke with, when, and what they told you in case you run into any issues.

How to dispute a debt 

Don’t believe the debt a collector is trying to collect is yours? Following these steps could help. 

  1. Make sure you have all the information you need.
    Under the federal Fair Debt Collection Practices Act (FDCPA), a debt collector is required to send information regarding the debt either in their initial communication with you or within five days of their initial contact with you regarding the collection of any debt.
  2. Ask for validation.
    Within 30 days of the initial contact, the FDCPA allows you to write a letter stating that some or all  of the debt is being disputed. (The CFPB has a sample letter to help.). During this period, the FDCPA says the debt collector is to stop any attempts to collect on the debt until verification is sent. (Note: You can still attempt to dispute the debt outside the 30 days, but the debt collector can continue their attempts to collect.)
  3. Get proof of the date sent.
    Consider sending your letter via certified mail so you can confirm receipt, along with the date. If the debt collector does not send proof after having received proper notice that you are disputing the debt or requesting the name and address of the original creditor, the FDCPA prohibits them from continuing to pursue payment.
  4. Collect information from the original creditor.
    If the collections agency sends verification and it still doesn’t seem accurate, consider contacting the original creditor and request written documentation of the debt. If they do not have this information it is time to contact the credit reporting bureaus to dispute the debt.
    [Notice incorrect information on your credit report? Learn how to dispute it with the credit reporting agency and get help for FREE by signing up for Upturn.]
  5. Still no solution? Get help.
    An attorney may be able to help resolve any debt collection issues you’re facing, especially if a debt collection agency is threatening to sue.

Things debt collectors can’t do

According to the FDCPA, debt collectors are restricted from using certain tactics to collect payment. Here are a few of them: 

  • Call outside of certain hours.
    Debt collectors must make calls after 8 a.m. and before 9 p.m. local time unless they obtain your consent or the permission of a court.
  • Harass you.
    While the FDCPA outlines several examples of harassment, the basics include no threats of violence, no profanity,  and no repeated phone calls intended to annoy. 
  • Sue you for time-barred debt.
    Remember, there is a statute of limitations for most debt and courts generally find it’s a violation of the FDCPA for a debt collector to sue for debt outside of this time frame.

Let’s take a look at what those time frames are. 

[Find out more things debt collectors aren’t allowed to do.]

Debt Collection Laws by State

Time-barred debts
How much time must pass before a debt is considered time-barred? Well that depends on which of the four categories below it falls into, as well as the state in which you live. 

It’s important to note, however, debt collectors can attempt to collect payment and you could potentially be ordered to pay – unless you establish with evidence that the debt is in fact time-barred. Also, it’s important to know when your state starts or restarts the clock on your debt. In some states, for instance, if you make even a small payment on a debt or make a verbal agreement to pay on a debt, that could start the clock over. In other words, a recent payment on a debt that was four years past-due could mean it’s no longer time-barred. 

Collection amounts
Another aspect of debt collection that can vary by state is the amount of home equity, vehicle equity, money in your bank account, and wages that are protected should a debt collector get a judgement against you. 

  • California
    • Home: $50,000 (single), $75,000 (married), $125,000 (65 or disabled)
    • Vehicle: $5,000 (2x)
    • Bank Account: $0
    • Wages: 75%
  • New York
    • Home: varies by county
    • Vehicle: $4,000
    • Bank Account: $1,740 or $2,500 if account contains money from Social Security, pensions, veteran’s benefits, and other entities (see a complete list)
    • Wages: 90%
  • Texas 
    • Home: unlimited
      Vehicle: unlimited
      Bank Account: unlimited
      Wages: 100%
  • Florida
    • Home: unlimited
    • Vehicle: $1,000
    • Bank Account: none
    • Wages: 100% (head of family only) or 75% for non-head of household

[See how much assets are protected in your state.]

Debt Collectors in the News

Not all debt collection companies are bad – but not all operate above board either. Here are a few companies that ended up paying for sub-standard practices.  

Portfolio Recovery Associates
In 2015, Portfolio Recovery Associates was ordered by the Consumer Financial Protection Bureau to pay a total of $19 million in refunds, an $8 million penalty, and halt collection attempts on $3 million in other debts. According to The New York Times, the CFPB alleged they were one of two companies that “bought the rights to collect debts that were potentially inaccurate, lacked documentation or were legally unenforceable…tried to collect the money without verifying the debt…[and] pressured borrowers to pay with false statements, with lawsuits and with the use of so-called robo-signed court documents.”

Encore Capital Group
Also named in the same 2015 lawsuit with the CFPB, Encore Capital Group was ordered to pay $42 million in refunds, $10 million in penalties, and halt collection attempts on $125 million in other debts. Both companies were ordered to change their debt collection practices going forward. 

Forster & Garbus
In 2019, the CFPB charged the debt collection law firm Forster & Garbus with using “deceptive acts and practices” to file lawsuits against thousands of customers between 2014 and 2016. This included filing suits without supporting documentation and strong arming consumers into paying for debt they no longer owed or for amounts that weren’t accurate. 

Midland Credit Management
In 2018 Midland Credit Management, a subsidiary of Encore Capital Group agreed to a settlement over the accusation they “used illegal tactics to collect unverified debts by failing to verify debt information and failing to properly document debts.” The settlement stipulated they would pay $577,783 to consumers in District of Columbia and $25,000 to each state, plus a $6 million penalty.

Debt Collection Red Flags 

Before a call regarding a debt sends you into a panic, it’s important to make sure it’s a legitimate debt collector and not a scam. Here are a few red flags to pay attention to: 

They refuse to give you specific information about the debt.
A debt collector is required to give you information such as the name of the original creditor and the amount owed on the debt. Per the Fair Debt Collection Practices Act, they are required to provide it upfront or send it in writing within five days of the initial conversation.

They ask for payment in ways that are untraceable.
If a debt collector asks for payment via a wire transfer or prepaid card, beware. Reputable debt collection agencies generally allow a variety of payment methods, most of which are traceable. 

They push for immediate payment.
The FDCPA gives you the ability to verify a debt from the original creditor before agreeing to pay a debt collector (if they still have record of the debt). Legitimate debt collectors should be aware this is a stipulation of the Fair Debt Collection Practices Act. 

They threaten you with jail time or police action.
While criminal action could be a possibility if your unpaid debt is related to a criminal charge, most debts would not result in jail time or a visit from the police. 

[Learn more about debt collection red flags.]

Should You Consider Debt Settlement? 

If you’re faced with a large amount of debt and unable to pay in full, debt settlement might seem like an enticing option. But what is it exactly? 

While you can technically negotiate and settle your debt on your own, debt settlement is usually a service completed by a third party – either a debt settlement company or an attorney. 

Debt Settlement Companies

Debt settlement or debt relief companies operate to navigate the negotiation process on your behalf and ultimately lower the amount owed to your creditors. But it may not be as straightforward as you think. Here are a few things to be aware of.


Your credit could be negatively impacted.
In order to motivate your creditors into accepting a lower amount, a debt settlement company may instruct you to stop paying on that debt until a settlement is reached. Considering payment history makes up a significant portion of your credit score, this could wreak havoc on your credit. In addition, settled accounts appear on your credit report as such – a term seen as negative by potential lenders.

Their services could be costly.
If a shortage of funds is the reason why you haven’t been paying on your debt, paying the fees required by the debt settlement company may not be an easy pill to swallow. In addition, if they are able to reach a settlement, the IRS may require you to pay income tax on the amount you no longer have to pay to the creditor.

It may not work.
There’s no guarantee a debt settlement company can deliver on their promises. If that’s the case, and you haven’t been paying on the debt, you could end up in a worse place than when you started. 


They may provide necessary relief.
While paying for the services offered by a debt settlement company may not be ideal, if you’re drowning in debt and unable to move forward financially, it could be a helpful first step that allows you to avoid bankruptcy.

Not all have the same fee structure.
Not all debt settlement companies require upfront payment (which, according to the Consumer Financial Protection Bureau, could be a red flag), nor will they all charge the same amount. For instance, some charge a percentage of the amount your debt is settled for, while others may charge a percentage of the original amount owed.

Some provide additional helpful services.
From debt consolidation to credit counseling, reputable debt settlement companies may provide additional services to help in your debt repayment journey. 

What do debt and bankruptcy attorneys do?

If your debt collection case has escalated and a debt collector or creditor is threatening legal action, it could be a good idea to speak with an attorney. They can also help determine the best course of action for handling your debt, negotiate with creditors, or help you file for bankruptcy if that’s ultimately what you decide to do.

The Bottom Line

Dealing with debt collectors can be stressful and overwhelming, but an account sent to collections doesn’t have to mean your financial future is destroyed. By knowing your rights as a consumer, following the right steps, and seeking help if necessary, you can find a solution and set off on the path to mending your credit.

[Find out how Upturn can help you take control of your credit – for FREE.]