What Are Debt Collection Agencies?

A debt collection agency might contact you if you’re very late on a payment. They could call, text or email, but don’t ignore them or your troubles may get worse.

These debt collection agencies either work for the original creditor, or else buy debts for a fraction of what you owe and then try to collect the full amount.

If debt collectors come knocking, you do have protections, and you can dispute the debt if it’s wrong. You may also be able to negotiate repayment with the agency.

Key takeaways

• A debt collection agency works to recover overdue bills or debts.
• Federal law says what debt collection agencies can and can’t do to get the money back, prohibiting any “abusive, unfair or deceptive” actions.
• Don’t ignore a debt collection agency — it can wreck your credit, and you could face a lawsuit.

What is debt collecting?

Debt collection means getting back money owed when that payment is late — usually very late.

If you don’t pay a bill or loan on time, businesses and lenders will often try to collect the debt themselves first. But if they’re unsuccessful, the account or bill may be “placed in collections,” usually 90 to 180 days after the due date.

Some companies have their own debt collection services. Others use an outside debt collection agency, or else sell your debt to a debt buyer.

Once the bill is in collections, you’ll receive calls, letters or legal notices demanding payment from the debt collector rather than your original creditor.

Depending which state you live in and the type of debt, creditors and collection agencies only have a limited window of time to sue you for the money you owe, called the statute of limitations on debt.

After the statute of limitation period, usually between three and 10 years, collection attempts can continue, but creditors can no longer sue you for repayment.

How do debt collection agencies work?

Once a debt collection agency gets a debt from a creditor (or buys it), they’ll contact you using the information on file.

Under the law, debt collection agencies must send a debt validation letter within five days of their first contact. This letter shows how much you owe, the name of the original creditor and a statement of your rights as a debtor.

If the debt doesn’t belong to you or the amount is incorrect, you can dispute it in writing within 30 days. The agency has to give you proof the debt is valid before it can continue its collection efforts. If you’ve already paid the debt, you can challenge the collection attempt.

If you do owe the money, but you refuse to pay it or ignore the debt collectors, the agency may take action, like reporting the delinquent debt to the credit bureaus (which could lower your credit score), and even taking you to court.

And if the debt collection agency wins a lawsuit against you, it could garnish your wages, put a lien on your property or freeze money in your bank accounts.

How to respond to debt collectors

You have ways to deal with debt collection if you find yourself in this situation. Make sure you know your rights, and stay calm.

Try not to admit to the debt and don’t make a payment immediately — especially if you believe the debt isn’t yours or is past the statute of limitations. (Verbally agreeing to pay a debt older than the statute of limitation could restart the clock on collection efforts.)

If you haven’t received a debt validation letter, ask for one before discussing anything. The letter confirms details about the debt, including who the original creditor is and how much you owe.

If the debt seems incorrect, dispute the debt in writing within 30 days. Keep the debt validation letter until the debt is either canceled or repaid.

By law, you can demand that the debt collection agency not call you and only contact you through mail. This lets you avoid giving your personal financial details over the phone, and you’ll be able to keep a record of all communications.

How to negotiate your debt

You may be able to negotiate to cancel your debt. The Consumer Financial Protection Bureau suggests the following steps to try to settle with a debt collector:

1. Confirm the debt is yours. Ask for the debt validation letter if you don’t have it, and make sure the debt is yours, that the amount is correct, and that it isn’t past the statute of limitations.
2. Propose a payment plan. Before agreeing to pay, look at your finances and think about what you can afford and how much you want to pay in total. When negotiating, you can offer a lump sum or a payment plan. Some collectors may accept much less than the original amount owed.
3. Get it in writing. Make sure you have the agreement in writing before making a payment. This way you can be sure the debt collection agency will uphold its end of the deal.

What is the Fair Debt Collection Practices Act?

The Fair Debt Collection Practices Act (FDCPA) is a federal law that protects consumers from abusive, unfair or deceptive debt collection practices. It sets rules for how debt collectors can contact people, what they can say and what they can and can’t do when trying to collect a debt.

For example, under the FDCPA, collectors cannot harass, threaten or lie about what you owe. They can only contact you between 8 a.m. and 9 p.m. unless you give them permission, and they must also provide a debt validation letter explaining the debt.

The Debt Collection Rule, an update to the FDCPA, clarifies how collectors can communicate, including limits on phone calls and rules for contacting people via email, text or social media. See above for more details.

Debt collection agency scams

Unfortunately, scammers pose as debt collection agencies, trying to scare or intimidate people to steal their money. For this reason, never give out any personal information to unsolicited callers.

Here are some signs that a debt collection call could be a scam:

• The debt collector asks for your personal financial information.
• The debt collector refuses to give you information about your debt or is trying to collect a debt you don’t recognize.
• The debt collector pressures you or threatens you with an arrest or criminal charges.
• The debt collector refuses to give you their company contact information.

If you suspect you are dealing with a debt collection scammer or a debt collector engaging in abusive practices, you can submit a complaint to the Consumer Financial Protection Bureau, Federal Trade Commission or your state attorney general’s office.

You should also keep an eye on your credit, either through a free service like LendingTree Spring or by requesting your free credit report directly from the main credit bureaus.