Here's What Happens When You Let a Debt Go Into Collections

When you owe money, whether in the form of a mortgage, auto loan, or medical bill, you're required to pay your bill. If you don't, the entity you owe money to might put your debt into collections. And from there, a series of negative financial consequences could ensue.

How the collections process works

A lender or entity you owe money to might turn over your unpaid debt to an outside collection agency so that they can recoup that sum. Once that happens, you can expect your credit score to take a significant hit. And the lower your credit score, the harder it becomes to borrow money -- or borrow affordably -- when you need to. You may, for example, be denied a personal loan if you apply after your credit score has plunged.

Once your debt goes into collections, the collection agency has the right to contact you frequently and urge you to repay the sum you owe. However, there are rules that the agency needs to follow -- more on that in a bit.

If you're unable to pay your debt in full, you can try negotiating with the collection agency. It may agree to settle your debt for a reduced amount so it can get paid something. But that's not guaranteed to happen.

If you don't pay your debt, your collection agency may, at some point, take the case to court. If a judgment is entered against you requiring you to pay your debt, and you don't do it, you could face consequences such as wage garnishment or having your bank accounts frozen so you can't access your funds. 

What happens when a collection agency harasses you?

Debt collectors are allowed to contact you many times over in an effort to get you to repay your debt. But there are still rules these agencies need to follow, and it's important to know your rights. 

The Fair Debt Collections Practices Act dictates that collection agencies cannot threaten you or use abusive language when they make contact. They cannot, for example, claim to have the right to throw you in jail for failing to repay your debt.

Debt collectors also have to contact you at reasonable hours. They aren't allowed to call you prior to 8 a.m. or after 9 p.m.

Furthermore, if a debt collector is made aware that you're not allowed to receive calls at your place of work, then it can't continue to call you there. And, collection agencies cannot use social media to shame you or post about any sum you owe. 

You may decide to hire a debt settlement attorney to help you deal with your debt. If that's the case, the collection agency assigned to you must stop contacting you directly and instead direct future communication to the lawyer you've hired. 

If a collection agency violates any of these rules, you can report it by submitting a complaint to the Consumer Financial Protection Bureau. Keep a record of all communications so you're able to provide as much detail as possible. 

All told, it's really not a great thing to let your debt get to the point where it's gone into collections. If you're able to reach out to your original creditor and work out a payment plan first, you'll generally be in a better position. But if that doesn't work, it's important to know your rights once you have a debt collector assigned to recoup the money you owe.