Discovering that a debt has been sent to collections can feel overwhelming—but it doesn’t have to be. This is a common situation, and there are clear steps you can take to handle it. In fact, the debt may not even be valid. Before you pay anything, it’s important to confirm what you owe and understand your rights.
What Happens When a Debt Goes to Collections?
When a debt goes to collections, it simply means the original lender or credit card company has decided to sell the loan to a third-party company that specializes in collecting money on loans.
Known as a collection charge-off, this usually happens when an account falls several months behind in payments. However, there have also been cases when debts were sent to collections by mistake.
People make mistakes. Sometimes these errors include a paid-off debt — or a debt that’s too old for any kind of legal action to take place — ending up in collections. When someone who works for a collections company contacts you, it’s important to ask them to prove that you owe the money.
Get Confirmation First
If a lender is going to take legal action to get a debt repaid, they have a limited amount of time to do so. Known as the statute of limitations on debt, the exact amount of time they have varies from state to state.
Typically, the clock starts running as of the date of the last payment made on the account.
The money you owe becomes “zombie debt” once the clock runs down. After that, the only way to restart the clock is for you to make a payment on the debt — or to admit ownership of it to a collections agent.
So, never accept responsibility for a debt until the collections company provides written proof that it is yours and that the statute of limitations has not expired.
Without accepting ownership of the debt, ask the agent to provide written confirmation of the obligation. This is known as a debt validation letter and it should contain the name of the original lender, the outstanding balance and the date of the last payment.
It should also provide confirmation that the person contacting you has the right to collect on the debt. Keep a copy of your written request and note the date it was sent.
You’ll have 30 days after the collections company gets in touch with you to make this request. If the company doesn’t get back to you with written proof within five days, you don’t have to contact them again.
However, if they do respond and you realize that you owe the money — and that it is collectable — here are some options for what you can do next.
Work Out a Deal
Is paying off a debt in collections worth it? Yes. Legal problems aren’t anything to laugh about. However, in a lot of cases, collectors will accept a lesser amount if you offer to settle the debt in one payment.
Of course, you need to be sure you can keep your end of such a deal. But the point here is that it doesn’t hurt to ask. If you can’t get them to go for something like that, set up a payment plan that you know will work for you. Then, pay off the debt that way.
Whatever kind of deal you work out, make sure to get a signed copy of it in writing delivered to your address. Make no payments until you get that document and you’ve reviewed it to make sure it is exactly what you agreed to do.
Things like employee turnover at a collections company can result in a new person claiming your deal doesn’t exist. A written document will give you proof of the agreement.
Seek Professional Help
Here at National Debt Relief, we can often help you get a better deal than you might be able to get on your own. We’ve been working with lenders and collections agents to resolve debt for a long time.
Of course, there are no guarantees of such a better deal. We’re not saying we can absolutely settle your debts “for pennies on the dollar.” However, we have had quite a bit of success in debt relief over the years.
In Summary
Learning you have a debt in collections is distressing, but you have the power to resolve the issue. Get in touch with the collections agent and make them prove you owe the debt.
If you do owe the money, follow the advice above so you can get through the problem with your dignity intact.
