Consumer debt in the U.S. soared to an all-time high in 2020‚ÄĒreaching nearly $14.9 trillion, according to national credit data. Some of that debt is in the hands of debt collectors, with a study released by the Urban Institute last year estimating that debt in collections showed up on the credit reports of 30% of American adults who had credit histories. In some cases, a lender turns over your uncollected debt to a third-party¬†collection agency or even sells it to a debt buyer. The agency or buyer will then try to recover at least some of the debt. In certain instances, if the holder of your debt isn’t successful in getting a debt repaid, it may resell your debt to yet another collection agency. Read along to learn more about what happens to your debt when it’s in collections.

What Are Debt Collectors Not Allowed to Do?

When a debt collector is trying to collect money from you, such as delinquent debt from credit cards, medical bills or auto loans, the Fair Debt Collection Practices Act (FDCPA) is in your corner. The federal law prevents a debt collector from:

When a debt collector violates the FDCPA, you can take the collector to court. If the court rules in your favor, you may receive monetary damages, repayment of legal fees and more.

A statute of limitations governs¬†how long¬†negative information about debt in collections stays on your¬†credit report. Under the FDCPA, a negative mark related to uncollected debt can remain on your credit report for seven years from the time the debt first became delinquent. There’s another debt-related statute of limitations to consider. This one restricts the window of time during which a lender or debt collector can sue you in an attempt to recover money from you. The statute of limitations varies from state to state, but it’s generally three to six years.

Can a Collection Agency Report Old Debt as New?

If a collection agency has been unable to recover money from you, it can resell the debt to another collection agency. However, the debt will retain the original date of the delinquency. Therefore, the collection agency cannot report old debt as new debt. Let’s say the¬†original delinquency date¬†occurred in 2018 but the debt was resold in 2019. In that scenario, the original delinquency date would remain in 2018, not 2019. Even though the debt was sold a year after the account first became delinquent, the amount of time that this negative item appears on your credit report¬†is not extended.

How to Deal With Accounts in Collections

Do you have an account in collections? If so, don’t panic‚ÄĒbut don’t ignore the debt, either. Here are four tips for dealing with an account in collections:

  1. Request that the debt collector stop contacting you.¬†Under federal law, a debt collector typically must stop contacting you once you ask them to do so in writing. After your written request is received, a debt collector can only reach out to say you won’t be contacted any longer or that you’re being taken to court.
  2. Consider negotiating the debt. Believe it or not, debt collectors may agree to a lump-sum payment to settle the debt, or may work out a repayment plan with you. Ask what options are available to you. Pay to delete, and only pay 30%-70% of the debt!
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*Individual results may vary. Please call for details and to discuss your own individual situation.