Collection Agency Procedure to Collect Unpaid Debt

Kathleen Esposito
Find out how collection agencies work.
Find out how collection agencies work.

There is a lot of confusion out there concerning the collection agency procedure to collect unpaid debt. Some people fear men dressed in black coming to their homes and demanding payment. Others think they can be thrown in jail if they do not repay. However, neither of these things are true. Collection agencies are actually pretty limited as to what they can do legally.

Sending Letters

The first thing a collection agency will do is send the person that owes money a letter. Most times, these letters are created from templates and are not very personal in nature. The initial letter tells the debtor how much he or she owes and where the charges stem from. It gives the person a deadline for repaying the money before the company will "pursue further collection action." Although it doesn't state what this action will be, it is most likely limited to more contact. However, as the person continues to ignore the debt, this contact can become more harsh in nature.

Making Phone Calls

If the collection agency proves unsuccessful in getting repayment after sending one or more letters, it may proceed with telephone calls to the debtor's home or office. In these phone calls, a representative will again explain the debt owed and try to arrange for repayment. Sometimes the collection agency will negotiate with the debtor and accept a smaller sum than what is owed, but this will depend on the size of the debt, the individual's ability to repay, as well as his or her behavior. If no resolution is made after one phone call, the agency has no problem calling again. Eventually a person could receive a deluge of calls and letters several times a week, especially if he or she ignores the communication.

Reporting To the Credit Bureaus

One of the most damaging things involved with a collection agency procedure to collect unpaid debt is that the agency can communicate with the three major credit bureaus and have them note collection activity on the debtors' credit files. These notations can stay on people's credit reports for seven years, potentially affecting their ability to obtain new credit. Even if a debtor settles with the collection agency, it does not have to remove the note from the credit report.

Filing Lawsuits

It is rare that a collection agency will sue for a debt, but it does happen. In order for the agency to do this, it must own the debt outright and cannot simply be working on behalf of another company such as a credit card isssuer. Most likely the agency will pursue legal action only if the debt is very large, say $2,000 or more, since the potential payout is high enough that it will be worth the time and effort.

Limitations to the Collection Agency Procedure to Collect Unpaid Debt

The Fair Debt Collection Practices Act was passed to regulate the actions of collection agencies. There are several things that collection agencies are not allowed to do when attempting to collect debt from consumers. Many agencies will do them anyway, since often people are not aware of their rights. By law agencies are not allowed to:

  • Use harassing or abusive language in their phone calls or letters
  • Disclose information about the debt to uninvolved third parties, such as debtors' employers
  • Call debtors in the middle of the night (after 9:00 p.m. and before 8:00 a.m.)
  • Contact debtors' friends or relatives, except to get contact information
  • Call the debtor before he or she receives that first letter of notification
  • Continue to call a debtor that has requested to not be contacted
  • Misrepresent themselves in any way

Consumers can report suspected violations to the Federal Trade Commission at 1-877-FTC-HELP. They should write down all instances of violation in detail and get a witness to corroborate them if possible.

Collection Agency Procedure to Collect Unpaid Debt