Dealing with Collection Agencies

You have a variety of options when your past due account is transferred or sold to a collection agency. But before discussing those options, there are a few things to understand about why your past due account goes to a separate collection agency.

First, your lenders and credit card companies make money by giving loans or extending credit and charging interest. They are not in the business of trying to collect past due loans or accounts. So when an account becomes seriously past due, they would rather sell the account off to another company and make their money that way rather than incur the time and costs of trying to collect on a past due account. Creditors expect a certain percentage of their accounts to become past due, and selling them is a normal business practice. They can sell the account to collection agencies for less, usually between 40% and 80% of the total amount due. Once the account is sold off, and the lender makes what money it can, you may see the account listed as a “Charge Off” or “Charged Off” on your credit report. This does not mean you no longer owe the money. It just means you the money to someone else.

The collection agency (or law firm, since many law firms are in the business of collections) will then try to collect the entire past due amount against you, and thereby make a profit since they purchased it for less. Their collection attempts can be much more aggressive than your original creditor’s. You may receive constant phone calls, letters, calls at work, and even threats of a lawsuit.

So what options do you have to resolve this, and stop the collection calls and attempts? For starters, you can file a bankruptcy and not pay them a penny. The bankruptcy filing will stop all collection attempts permanently. It will immediately stop the calls, letters, and even a lawsuit or judgment. After your bankruptcy is discharged, the debt will show a ZERO balance on your credit report. You will not be taxed on the discharge of debt either.

If bankruptcy is not an option, you can try paying the account off in full. If you can afford to pay it off in one lump sum payment, this will clear the debt and you can even ask the collection agency to remove the past due account from your credit report. Unfortunately, this is not an option for most borrowers these days.Â

If you don’t have all the money to pay off the account in full, you can request a monthly payment plan. Some collection agencies will negotiate on the monthly payment amount, some won’t. But know that if you choose this option you must pay off the debt in full over time. They will not settle for less. Some collectors may take the account off your credit report once its paid off, some may not.

If you have some money available to pay them, negotiating a settlement for a lesser amount is another option. Many collection agencies will take a lump sum payment for less to close out the account. However, this will not get the past due account off your credit report. In addition, you may be taxed on the difference between the original amount owed and the amount you paid to settle it since that is considered income.

SM Law Group, APC can assist you with each of these options. Please call us for a free consultation to see how we can help.