What Happens When Your Bill Goes to Collections
When your bill is 30 days late, you may face late fees or increased APR if it’s a credit card account. If you continue to miss payments for more than a month, the creditor’s internal collections department may contact you to address the overdue bill.
Signs Your Debt is Sent to a Collections Agency
If your debt is 90 days past due or more, your lender may opt to assign or sell the debt to a third-party collection agency, a process known as “charging off” the account. In some cases, entire debt portfolios are sold between collection agencies. This decision is made when the creditor doubts your ability to repay the debt and hopes to recover some funds through the collection agency.
How Charge-Off Affects Your Credit Report
Once your creditor charges off the account, it reflects on your credit report along with an account closure. A new account is opened with the collection agency, and your debt is now owed to them. The original delinquency date remains unchanged, maintaining the history of your missed payments without resetting the statute of limitations.
Your Original Delinquency Date and Legal Provisions
Despite changes in the ownership of your debt, your original delinquency date persists, ensuring your credit history remains unaltered. Legal provisions like the statute of limitations—spanning from seven to ten years depending on the debt—cannot be reset by debt collectors through re-aging techniques.
Regulatory bodies such as the Federal Trade Commission intervene if debt collectors attempt to manipulate the statute of limitations. Collection activities by third-party agencies are governed by the Fair Debt Collection Practices Act (FDCPA) to protect individuals from unfair debt collection practices.
Actions to Take When Facing Debt Collection
If a third-party collection agency contacts you regarding your debt, they may aggressively seek repayment. It is advisable to review your credit report to track accounts sent to collections and understand their statuses.
When contacted by a collections agency, gather information about the debt and confirm details with the original lender. If the debt belongs to you, explore repayment options and consider negotiating a payment plan with the collections agency.
Remember, making any payment on the new account can restart the statute of limitations on your debt. Be cautious when engaging with collections agencies and seek legal advice if needed.