The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.
While it may be tempting to simply ignore debt collectors, that is generally a poor long-term strategy. Several potential consequences of not paying a collection agency include negative changes to your credit, continuing interest charges and even lawsuits. Even if you can’t pay the debt in full, it’s often best to work with the collection agency to establish a payment plan.
Collection agencies are unlikely to give up on a debt, especially if you owe a substantial amount. The stress of having a debt sent to collections can be tremendous, but waiting out a collection agency and hoping the problem goes away isn’t a viable option.
Read on to learn more about four possible consequences of not paying your debt—and at the end of the article, we’ll offer some strategies for dealing with debt collectors.
Even after your debt goes to collections, interest charges can continue to accrue. According to the Fair Debt Collection Practices Act (FDCPA), the collection agency can also charge any fees or interest rates outlined in your original contract—like the interest rate of a loan.
The collection agency cannot raise your interest rate or add new fees, but it may choose to continue generating interest or charge late fees if they were part of the original agreement. That means ignoring the debt collector doesn’t just fail to make your debt go away—in fact, the amount you owe may continue to grow.
Having an account sent to collections will lead to a derogatory mark on your credit report. Unfortunately, the mark will likely stay on your credit report for up to seven years even if you pay off your debt with the collection agency. It’s also possible that paying off your collection account may not improve your credit.
Nevertheless, paying off a collection account could help your credit situation in several ways:
While you may not see an immediate improvement to your credit after paying off a collection account, it’s an excellent first step toward creating a more positive credit history for yourself. Over time, the impact of a collection account on your credit will start to decrease, which means that your new credit habits—paying on time each month and keeping utilization low, for instance—will start to have a strong effect.
Collection agencies will continue to try to reach out to you unless you pay your debt, particularly if you owe a significant amount. Collectors can contact you by phone, mail, fax, or email from 8 a.m. to 9 p.m. Additionally, they are allowed to contact your friends and family to try to locate you—so simply avoiding their phone calls is not a viable strategy.
Also, it’s important to know that collection agencies can continue to reach out to you as long as it is still within the statute of limitations. The statute of limitations, or how long your debt is considered valid, varies based on the type of debt and your state. That said, since the longest statute of limitations can be upward of 10 years, some collectors could call you long after the seven-year mark, which is when the collection account clears from your credit report.
According to federal debt collection laws, you do have the right to request in writing that agencies stop contacting you. If they don’t stop contacting you, the Consumer Credit Protection Act lets you file a complaint with the Consumer Financial Protection Bureau.
However, asking a collection agency to stop contacting you doesn’t mean the debt goes away. If you continue to ignore the debt, the collection agency may file a lawsuit.
If a collection agency intends to get paid for your debt, it may decide to initiate a lawsuit against you. After the collection agency files the lawsuit with the state, you’ll receive a copy and a summons to appear in court.
You’ll want to consult with an attorney immediately, as failing to appear in court will mean you lose by default. In that case, the judge could award the collection agency the ability to do the following:
If you do receive a court summons, work with a qualified lawyer to help build a case, which will hopefully lead to a settlement with the collection agency.
Bankruptcy is a legal process that can help businesses and individuals eliminate their debts and stave off collection agencies. There are multiple types of bankruptcy plans (called Chapters) that each come with several drawbacks. Bankruptcy can also drastically hurt your credit and stay on your report for 10 years, so it’s ultimately considered a last resort.
Credit card debts, medical bills and personal loans can all be eliminated by Chapter 7 bankruptcy. This process usually occurs over three to four months and is overseen by a federal bankruptcy court. The court then issues an automatic stay and assigns a trustee to your case.
The trustee will then appraise your possessions and liquidate assets to help reduce your debt.
Chapter 13 bankruptcy covers many of the same debts covered by Chapter 7 bankruptcy. Here, filers work with bankruptcy courts and attorneys to create a repayment plan. After three to five years of routine payments, a filer’s bankruptcy will eventually be discharged. Chapter 13 doesn’t seek to liquidate your assets, so you ideally won’t have to sell your valuables.
It’s possible to avoid filing for bankruptcy altogether, which requires making a plan to deal with debt collectors rather than ignoring them.
Although it can be overwhelming to receive communication from a debt collector, you can formulate a plan to deal with debt collectors to improve your finances. With the right approach, you’ll be able to slowly fix your credit and get back on track.
Use the following approach to begin dealing with the collection agency:
Over time, you can rebuild your credit and pay your debts. However, if the debt is illegitimate or misreported, you should immediately challenge it. To help with that process, consider working with the credit repair consultants at Lexington Law Firm, who can assist with credit repair and address negative items on your credit report.
Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.
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