If you’re considering leaving a credit card or hospital bill unpaid, be aware of the fact that doing so for long enough will almost certainly result in your creditor remanding the full balance you owe to a collection agency for debt recovery. A collection agency is any organization whose sole purpose is to collect overdue debts.
Collection agencies usually purchase old debts directly from businesses that wish to clear their accounting ledgers. Very few businesses, if any, will sell their old debts to collection agencies before the debt goes six months without any activity. After the six month mark, most companies consider the debtor unlikely to ever pay and prefer to take a loss on the account rather than continue to dedicate corporate resources to collection activity. Occasionally, third-party collection organizations also work on commission.
When collection consumer debts, all debt recovery organizations must follow the Fair Debt Collection Practices Act (FDCPA) to ensure that each consumer’s rights are respected throughout the collection process. The FDCPA dictates that collection agents cannot harass debtors, misrepresent themselves or the company they work for or disclose private consumer information with anyone other than the consumer. Failing to do so could result in a lawsuit.
Collection agencies frequently report each of their accounts to the credit bureaus. When a company reports an account to the credit bureaus, a trade line appears on the debtor’s credit report. In the case of adverse accounts, such as collection accounts, the trade line is derogatory and will always have a damaging effect on the debtor’s credit rating.