What Happens If You Don’T Pay A Collection Agency?

Refusal to pay a collection agency

If you have unpaid dues that you have not been able to pay, it means that the original creditor will at one point cease trying to recover the money directly from you and instead sell your debt to a collections agency. Collection agencies are organizations that primarily target consumers for debt recovery and they often acquire debts with an expectation of recovering a larger amount than what they paid for at a very low price.

Sometimes it is possible to simply disregard calls and letters from a collection agency and hope they will eventually leave you alone, but this is extremely dangerous as it might lead to further detrimental consequences affecting your financial situation and credit history in the future. Here’s an overview of what can happen if you don’t pay a collection agency that is attempting to collect a legitimate debt.

Credit Reporting and Score Damage

The second thing that a collection agency will do if you fail to pay or negotiate how you will clear the outstanding amount is that it will forward the account to the three main credit reporting agencies. This will directly affect your credit reports and the computation of your credit scores which are widely used by many lenders to decide if they should approve financing requests or not.

Just one unpaid collection account being reported can bring your credit scores down by 100 points or more. More than one collection account will continue to harm your scores even more. It takes up to 7 years for negative information such as collections to be removed from your credit reports.

One of the immediate effects of not solving debts in collections is not being able to get credit or paying very high interest rates on products such as auto loans and mortgages. In the long run, you can be locked out of a rental lease, a new job, or even a promotion, low-cost insurance among other things if you allow several unpaid collections reporting on your record to accumulate.

Continued Collection Attempts

Besides credit reporting, collection agencies enjoy immense freedom as to the legal measures they might take against consumers with bad debts on their books. When you do not want to talk about balances that are due or outstanding, collection agencies can send a never-ending barrage of nagging postal letters demanding payment. It is also legal for collection personnel to make a call to your home phone as well as your mobile phone in an attempt to recover the money you owe on the debt, and this can be done several times.

Even though the Fair Debt Collection Practices Act does outline the frequency with which collectors can call you to demand the money, it still seems like harassment. Often, not responding to the calls and letters does not even stop collection activities as well. It is for this reason that professional collectors are very motivated to collect.

In case of organizing unsatisfactory payments or carrying on refusing to communicate with the collection agency, they can use various steps, for instance, to inform friends, family, and employer of the debt to shame you into paying. While there are some limitations on contacting third parties regarding the debts, this technique remains actively used by collectors.

However, one may try to be rude to the collector and avoid or try to disregard any calls they make, this will not make the collector disappear. Indeed if they are not contacted it only serves to increase harassment activities. Informing collectors to discuss with clients and make some kind of payment plan even if it is a small monthly payment can reduce further collection messages in many instances.

Legal Action

For larger unpaid balances that go a little beyond a few thousand dollars, most collection agencies, after some time, take legal action against people who do not acknowledge or pay their debts. In the above perspective, the collection agency essentially gains substantially more leverage to compel payment compliance whether willingly or otherwise through wage garnishment, bank account attachment, property lien, and downstream payment mandates.

If a collector takes a judgment holder legally, they can often renew it indefinitely or for several years at a time if there is still an outstanding balance which there often is since the interest rates are so high and the total amount due rises quickly as a result. Going up against a judgment or decision made after an event has occurred is almost impossible without a lawyer.

This means that those who still fail to respond to agency contacts about serious outstanding debts expose themselves to aggressive debt collection measures as well as long-term financial loss due to large judgments. You will also accumulate further large legal expenses and costs with judgments that make the unpaid balance and terms of payment even more punitive in total.

Tax Refund Garnishment

Other unpaid federal debts such as those sent to the government by collection agencies can also expose consumers to losing their tax refunds perpetually. The Treasury Offset Program or T.O.P., is a system whereby the IRS can offset most or all of a federal tax refund you are entitled to and apply it towards the unpaid debts you have shunned.

The same can be said for respondents who claimed to rely on federal benefits payments like Social Security retirement income. If you do not take any action against federal debt collectors, your funds are at risk of losing part of federal aid without having to pay for all that is owed.

Another reason not to disregard collection agencies that call or write to you is the fact that your tax refunds and federal benefits are automatically redirected from your pocket, all because of not paying back past due debts or for refusing to discuss the issue with the agencies calling or writing to you. Without laying down some form of stable repayment schedule, you trade financial stability for the expected federal handouts for years.

Other Credit and Financial Constraints

In addition to the direct repayment consequences, those with accumulating unpaid collections might also experience restrictions on opening a new checking account with many banks, acquiring affordable insurance, employment opportunities, renting a property, applying for affordable housing programs, applying for further credit, and many others.

Some industries such as the banking and financial services sector also use other more rigorous credit checks such as collection and judgments during the hiring process. Some other sectors; government employment, child care, schools, insurance companies, and property rental agencies might also reject your application once they have scanned through your reports and found negative information.

If one does not learn how to tackle growing collections after losing a job or experiencing a financial setback, it simply means losing the second shot at a financially secure and fresh start. Unpaid service bills that go unpaid for a long time create hurdles in rebuilding your credit reputation or approval chances with creditors.

The Bottom Line

Non-recognition of collection agencies and debts in collections could seem like the best short-term solution to a financial challenge or unfavorable situations that led to the formation of a past-due balance. However, in the medium and long term, this leads to severe consequences with adverse effects on your credit standing, financial well-being, and stability for as long as you don’t pay the collector.

Unpaid collections harm credit scores, making it challenging to obtain affordable credit. Creditors also have enormous legal rights to constantly phone and ultimately sue debtors which can turn lives into chaos through garnishment, lien, and benefit seizure. Moreover, overlooked collections lead to barriers such as insurance, banking, jobs, and housing.

Contrary to this, the consumers should engage the collection agencies right from the time of the contact attempts in the delinquency stage to negotiate for feasible payment plans. This assists in ceasing credit deterioration, stops constant collections pressures, eradicates possibilities of litigation and garnishment, and lets you gradually pay off the debts reasonably. Dealing with or eliminating collection accounts on your credit reports also assists you in the long run in rebuilding your credit to obtain future credit and financial management opportunities.

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