If your bill is 30 days late, it is unlikely to go to collection. Instead, you’ll likely have to pay late fees (or possibly an APR increase if the credit account is a credit card). After more than a month of non-payment of an invoice, a creditor’s internal collection department may contact you to try to update the invoice.
If your debt is seriously past due (typically 90 days or more past due), your lender may decide to assign or sell your debt to a third party debt collection agency. This is sometimes referred to as “debiting” the account. Sometimes collection agencies sell entire portfolios of debt accounts. The reason is that the creditor may assume that you are never going to pay your debt; Selling the debt to a debt collector or collection agency can help them get at least some of their money back.
Key points to remember
- If your debt is seriously past due (typically 90 days or more past due), your lender may decide to assign or sell your debt to a third party debt collection agency.
- This practice is sometimes referred to as “debiting” the account.
- When your creditor decides to debit your account, the debit, in addition to the account closure, will appear on your credit report.
- The original default date (when you missed your last payment) remains the same.
- Your credit history is not changed, and the limitation period for credit reporting or legal collection practices does not reset.
Charge Off appears on your credit report
When your creditor decides to debit your account, the debit, in addition to the account closure, will appear on your credit report. A new account with the third-party debt collection agency will open and the account opening date is the date of purchase from the original (or previous) creditor. In this sense, the previous account is written off by the seller creditor and a new collection account is opened. From that point on, you owe the debt to the collection agency.
Your original default date remains intact
This does not mean that your delinquency is erased, however. The original default date (when you missed your last payment) remains the same. It doesn’t matter how many times the debt account changes hands. Your credit history is not altered and the limitation period for credit reports or legal collection practices does not reset.
Collectors cannot legally restart the clock on the statute of limitations (seven to 10 years, depending on the debt) by re-aging techniques or by selling to another debt collector. The Federal Trade Commission shut down the operations of collection agencies for attempting to re-evaluate debts.
This does not mean, however, that nothing has changed. If your debt shifts from an original lender to a third-party debt collector, that new creditor’s collection efforts are regulated by the Fair Debt Collection Practices Act (FDCPA). The FDCPA is designed to protect you from unscrupulous or abusive debt collection techniques and generally only applies to third-party agencies.
What you should do next
If you are someone who has had your debt account sold to a third party debt collection agency, you will likely be notified; they will usually (and sometimes aggressively) contact you to request a refund. At any time, consumers can also check their credit reports to see if any of their accounts have been recovered. Your credit report will reveal all of your accounts and their status.
If a third-party debt collection agency contacts you, you have several options. But first, you need to gather as much information as possible about the debt. Find out from the agency about the original creditor, how much you owe, and if there are any fees the agency added. You may also decide to contact the original lender to confirm that they have sold your credit account and that the collection agency contacting you is the correct agency.
Once you have confirmed that the debt is yours, you have the option of making an arrangement with the collection agency to settle the debt. The agency may offer you the option of setting up a debt payment plan.
It is important to keep in mind that while it is illegal for collection agencies to restart the clock on the statute of limitations on your debt, if you make even one payment on your debt. debt on the new account, the clock will start again.