What to Expect When an Account Goes to Collection

​Once you’ve decided to send an overdue account to a collection agency, what happens to it?

Sometimes it depends on the type of debt that was incurred. The most common debts sent to collections are ...

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What to Expect When an Account Goes to Collection

Let’s Follow an Account Through the
Collection Process

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Once you’ve decided to send an overdue account to a collection agency,
​ what happens to it?
Sometimes it depends on the type of debt that was incurred. 

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​The most common debts sent to collections are credit card debts, medical debts, and student loan debts. Although personal loans, cell phone bills, utility bills, bank overdraft charges, and car loans are also quite commonplace.
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Debts May Be Assigned or Sold

Creditors have a choice when it comes to collection agencies. They may assign the debt to the collector while continuing to own the debt, or they may sell the debt to the collector outright.

For assigned debts, the agency takes its cues from the creditor. For instance, the agency doesn’t negotiate a settlement or pursue legal action without the creditor’s authorization.
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Virtually all collection agencies work on a contingency-fee basis for assigned debts; they are paid a percentage of the debt collected. 
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​The Collection Process

Debt collectors first attempt to contact consumers via letters and phone calls, to verify the identity of the consumer and attempt to resolve the account. Within five days of this first contact, the collector must send the consumer a Validation of Debt Letter, in accordance with the Fair Debt Collection Practices Act (FDCPA).
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The Validation of Debt Letter includes the following information:

• The total amount owed.  
• The name of the original creditor.  
• A statement indicating that the collector assumes the debt to be valid, unless the consumer disputes it within 30 days of the first contact.  
• A statement indicating that the collector will verify the debt by mail if the consumer writes to dispute the debt or request more information within 30 days. ​
• A statement indicating that the collector will provide the consumer with information about the original creditor within 30 days, if the consumer requests it.

 
If verification of the debt is requested, the collector will suspend collection activities while verifying the debt and preparing the Debt Verification Letter.

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     The Statute of
        Limitations

The statute of limitations on debt varies from state to state and is categorized according to four types of debt:
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• Oral agreements
• Written contracts
• Promissory notes
• Open-ended accounts

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(For a state-by-state list of the statute of limitations for debt, click here.)
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Once the statute of limitations has run on a debt, legal action may no longer be pursued.

However, collectors may still pursue collection of these time-barred debts, so long as they comply with the FDCPA.  In addition, if the consumer asks about the statute of limitations, the collector must explain that the debt is time-barred.

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Once the verification has been submitted, a regular schedule of collection letters and phone calls is resumed. In all communications, the collector should respectfully request payment and explain the time frame for reporting delinquencies to the credit bureaus, if applicable.

​Many collection agencies use a scoring model to assess contact ability and probability of pay. Scorning models and workflow can determine the next course of action or the focus of work on the accounts. 

​The scoring workflow continues until resolution is obtained, or the creditor authorizes legal recourse because all attempts to resolve have been unsuccessful.
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When Legal Action Is Necessary

Once it has been determined that a consumer has the ability to pay but is choosing not to, or will not respond to collection efforts, the collection agency may choose to pursue legal action. 

Assuming the lawsuit is valid, the court will issue a judgment in the creditor’s favor, ordering the consumer to pay the debt. Without a judgment, the debt collector cannot seize a consumer’s paycheck or bank account. With a judgment, however, the collector can begin to garnish the consumer’s wages through a garnishment order.

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Please note that resolution with the consumer is still attempted throughout this legal process,
allowing him or her every opportunity for resolving the debt.​

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If there are no wages to garnish, the collector can place a levy on the consumer’s bank account, allowing the creditor to seize the asset. Alternatively, the collection agency can place a lien on the consumer’s property.

What If the Consumer Cannot Be Located?

​Sometimes the consumer’s contact information is not accurate or up-to-date and the collection agency must employ various techniques to locate him. This is called “skip tracing.” (See “How Does Skip Tracing Work?”) 
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The skip tracing process requires specialized expertise as well as access to numerous databases, some of which are proprietary. For this reason, it should be left to professional debt collectors. An inexperienced or untrained individual can easily and advertently violate privacy laws, leaving the creditor vulnerable to a lawsuit.
 
At CSC, our “clients first” philosophy mandates professional treatment of both our clients and their consumers.  And our passion for ethics, compliance and client satisfaction translates into a higher recovery rate for creditors.

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Sources:
Adobe Images, Licenses Granted
Nolo
Investopedia
Nerd Wallet
The Balance