What Happens If You Don’t Pay Your Debt Collector?

When a financial obligation remains unpaid, the original creditor may eventually transfer the account to a debt collector. A debt collector is a person or company that regularly collects debts owed to others, including collection agencies, lawyers, or entities that purchase overdue debts. This transfer occurs when a debt becomes delinquent, often after several months of missed payments.

Initial Debt Collector Actions

Debt collectors initiate contact through various methods, including phone calls, letters, and emails. The purpose of these communications is to verify the debt and request payment.

Within five days of their first communication, debt collectors must send a written validation notice. This notice includes the debt amount, the current creditor’s name, and a statement that the communication is from a debt collector.

Credit Report Implications

Unpaid debts, particularly those sent to collections, significantly impact an individual’s credit report and score. A collection account represents a defaulted debt, typically one unpaid for at least 120 days before transfer to a collector. Once acquired, debt collectors report this to major credit bureaus like Experian, TransUnion, and Equifax. This creates a negative entry, substantially lowering credit scores.

Collection accounts remain on credit reports for seven years from the date of the first missed payment that led to delinquency. Even if paid, they can remain for this period, though their negative effect may lessen over time. Their presence indicates increased risk to lenders, making it harder to obtain new credit or favorable interest rates.

Debt Collection Lawsuits

If initial collection efforts fail, a debt collector may file a lawsuit. This legal action begins with filing a complaint or petition with the court, stating the claim for money owed. The individual is then served with a summons and a copy of the complaint, notifying them of the lawsuit and requiring a response.

Upon receiving these documents, the individual has a limited timeframe to file an answer with the court. Failing to respond can result in a default judgment against the debtor, meaning the court rules in favor of the debt collector without a trial. If an answer is filed, the case may proceed through discovery and potentially a trial where a judgment is rendered.

Post-Judgment Collection Actions

After a debt collector obtains a legal judgment against a debtor, they gain additional legal tools to enforce collection. One common method is wage garnishment, a legal procedure where a court orders an employer to withhold a portion of the debtor’s earnings. Federal law limits the amount garnished to the lesser of 25% of disposable earnings or the amount by which disposable earnings exceed 30 times the federal minimum wage.

Another post-judgment action is a bank account levy, allowing the judgment creditor to seize funds directly from the debtor’s bank accounts. This action requires a court order and can result in the immediate removal of funds up to the judgment amount. Additionally, a judgment lien may be placed on the debtor’s real property, such as a house, preventing its sale or transfer until the debt is satisfied.

Consumer Rights in Debt Collection

Consumers have specific rights and protections when interacting with debt collectors, primarily under the Fair Debt Collection Practices Act (FDCPA). This federal law regulates how debt collectors operate, prohibiting abusive, deceptive, and unfair practices. For example, collectors cannot contact consumers before 8:00 a.m. or after 9:00 p.m. in the consumer’s time zone, or at their place of employment if prohibited.

A significant right is the ability to dispute a debt and request validation. Consumers can send a written dispute letter within 30 days of receiving the initial validation notice. Upon receiving a written dispute, the collector must cease collection efforts until they provide verification of the debt, including proof of its legitimacy. If a debt collector violates these regulations, consumers may file a complaint with agencies like the Consumer Financial Protection Bureau or the Federal Trade Commission, and may have the right to sue the collector.