What to Do If a Company Sells Your Debt to a Collection Agency

Companies often sell outstanding debts to third-party organizations, transferring the right to collect the money owed. This process means that the original creditor, the company you initially borrowed from or owed money to, is no longer directly involved in collecting the debt.

What Happens When Debt is Sold

When a company sells your debt, it transfers ownership of your outstanding balance to another entity, typically a debt buyer or a collection agency. This new owner then assumes the right to pursue payment from you. The original creditor often sells these debts for a fraction of their face value, allowing them to recover some losses, particularly for accounts considered highly delinquent.

It is important to distinguish between a collection agency hired by the original creditor and a debt buyer. A collection agency working on behalf of the original creditor acts as an agent, meaning the original creditor still owns the debt. In contrast, a debt buyer purchases the debt outright, becoming the new owner and creditor with the legal right to collect the amount owed.

Consumers might be notified of this transfer through direct contact from the new debt owner or a notation on their credit report. The original creditor is generally required to inform you when your debt has been sold. The new owner is also obligated to send a written notice, often called a debt validation letter, shortly after their initial contact. The terms of the original debt, such as the interest rate or principal amount, generally remain the same even though a new party is collecting it.

Your Consumer Rights

Federal law provides protections for consumers dealing with debt collectors through the Fair Debt Collection Practices Act (FDCPA). This law aims to eliminate abusive, deceptive, and unfair debt collection practices, covering debts incurred primarily for personal, family, or household purposes like credit card balances, medical bills, or car loans. The FDCPA applies to third-party debt collectors, including collection agencies and debt buyers, but generally not to the original creditor collecting their own debt.

The FDCPA prohibits debt collectors from harassment and abuse. This includes using or threatening violence, employing obscene or profane language, or repeatedly calling. Debt collectors cannot publish lists of consumers who refuse to pay debts, except to credit reporting agencies.

Misrepresentation is forbidden under the FDCPA. Collectors cannot falsely claim to be attorneys or government representatives, misrepresent the amount owed, or imply you have committed a crime by not paying a debt. They are also prohibited from threatening actions they cannot legally take, such as wage garnishment or property seizure without a court order.

Debt collectors must adhere to specific communication rules. They cannot contact you before 8:00 a.m. or after 9:00 p.m. in your time zone, unless you agree otherwise. They are also prohibited from contacting you at your workplace if they know your employer forbids such communications. Collectors cannot discuss your debt with anyone other than you, your spouse, or your attorney, except to obtain location information.

You have the right to stop a debt collector from contacting you by sending a written request. While this stops communication, it does not erase the debt or prevent the collector from pursuing legal action. Many states also have their own fair debt collection laws that may offer additional protections or cover original creditors.

Confirming Debt Details

Upon initial contact from a debt collector, verify the legitimacy and accuracy of the debt before taking any action or making payments. This verification process helps confirm that the debt is indeed yours, that the amount is correct, and that the collection agency has the legal right to collect it. Acting without verification could lead to paying a debt you do not owe or one that is outside the statute of limitations.

Within five days of their first communication, debt collectors are required to send you a written debt validation notice. This notice must include the amount of the debt, the name of the original creditor, and a statement informing you of your right to dispute the debt within 30 days. It should also explain that if you dispute the debt in writing within this timeframe, the collector must provide verification of the debt.

To formally request verification, you should send a written letter to the collection agency within 30 days of receiving their initial communication. This letter should clearly state that you dispute the debt and request specific information, such as the original creditor’s name, the account number, the original amount, and proof that the collection agency owns the debt or is authorized to collect it. Sending this request via certified mail with a return receipt requested provides proof that the collector received your dispute.

Once the collection agency receives your written dispute, they must cease all collection activities until they provide the requested verification. If they fail to provide proper validation, they cannot continue collection efforts. It is important to maintain meticulous records of all communication with the collection agency, including dates, times, names of representatives, and copies of all correspondence sent and received.

Engaging with Collection Agencies

After you have completed the debt verification process, your next steps depend on the outcome of that verification. If the debt is validated and legally collectible, you have several options for engaging with the collection agency: negotiating a settlement for a lower amount, establishing a payment plan, or paying the debt in full.

When the debt is validated, you might consider negotiating a settlement. Many collection agencies purchase debts for significantly less than the original amount, often 5 to 10 cents on the dollar, which can provide room for negotiation. You could offer to pay a lump sum that is less than the full amount owed to resolve the debt. Any agreement reached should be obtained in writing before making a payment, clearly stating that the payment will satisfy the debt in full.

Alternatively, if a lump-sum payment is not feasible, you can propose a payment plan. This involves making a series of smaller, manageable payments over an agreed-upon period. Before agreeing, ensure the payment schedule is affordable and that the agency commits to reporting the debt as “paid in full” or “settled” to credit bureaus upon completion.

If the debt is not validated, or if the information provided by the collection agency is insufficient or incorrect, you should formally dispute the debt further. Send another written communication explaining why the validation is inadequate or incorrect, and reiterate that they should cease collection efforts. If the agency continues to attempt collection without proper validation, they may be violating the FDCPA.

The resolution of a debt in collections can impact your credit report. Paying a debt in full or settling it for a lesser amount can be noted on your credit report. However, the original derogatory mark from the delinquency may remain on your report for up to seven years from the original delinquency date.

If you find the process overwhelming, or if the collection agency engages in practices you believe violate your rights, seeking professional assistance can be beneficial. A credit counselor can help you understand your financial situation and explore debt management options. For persistent issues or suspected FDCPA violations, consulting with an attorney specializing in consumer law is advisable.