If you have recently received a notification from a debt collection agency that they are planning on beginning debt collection efforts for a delinquent account, you may have some questions. It can be odd paying off your debt to a company that you did not take a loan out from. While you are typically liable for the debt that you owe, there are some cases where paying a debt collection agency may not be the best option. This article will cover how a debt collection agency got your debt in the first place, when you shouldn’t pay on the account, and reasons why you might want to pay off the account. Let’s get started!
What Is A Debt Collection Agency?
A debt collection agency is a third-party business that does not actually give out loans (typically). Instead, their business model is to buy delinquent accounts from original creditors and attempt to recover a portion of the unpaid debt. In most cases, these agencies buy the accounts at a loss to the creditors. So if you owed $1,000 to a creditor, but defaulted on your payments, a debt collection agency might purchase your account for $200, with the hopes of getting at least $500 from you.
Once a debt collection agency has purchased your account, they will begin attempting to collect from you. There are a few ways that they do this, and they tend to escalate as the process goes on. For instance, the debt collection agency may begin its collection efforts by simply sending a letter that informs you of the change of custody of the account. They might lay out their intent to begin collection efforts and what that might entail. They may even offer an option to set up a payment plan. If this goes ignored, the agency typically begins consistently getting in contact. This tends to include calling your personal phone number daily. There are some guidelines that they have to abide by, that are protected under the Fair Debt Collection Practices Act.
If you continue to dodge contact from the agency, they will take further action by reporting your delinquent account to the credit bureaus to encourage payments. If this still does not work, the collection agencies will often move to file a lawsuit against you. The goal of a lawsuit is typically to have the court either grant a wage garnishment or levy bank accounts.
Do You Legally Have To Pay A Collection Agency?
If you have been contacted by a debt collection agency, you may be wondering if you actually have to pay them. Some people wonder since the agency is not the one they took the credit or loan from, whether or not they are legally bound to repay the agency. People tend to answer this question in two different ways: ethically and legally. Ethically, it may be hard to understand why you need to repay the debt collection agency. When looking at the relationship, you don’t actually owe the agency anything. You neither borrowed from them nor willingly entered into a financial relationship with them. These things only occurred with your creditor.
Also, it can appear as though the agency is abusing the system. They purchased a large debt at a minimal fraction of the total debt, meaning the company you actually owe money to isn’t even recouping what they lost! So how can you ethically pay the money back to the collection agency and not the actual creditor? Well… legally speaking, the account was willingly and knowingly sold by the original creditor to the collections agency. This means that the debt collection agency legally owns your indebted account and has every right to demand that you repay your debt. You also are still legally liable to repay that debt, even though the account has changed hands.
Reasons You Shouldn’t Pay A Collection Agency
So, if you are legally on the hook for this debt, is there any reason that should stop you from paying a collection agency? It can be confusing when you are requested to make payments to a company that you have never heard of before. It can even come across as though you are potentially being scammed. While no one can fault you for being cautious, the collection agency should be able to prove they are in fact the owners of the debt accounts. Regardless, there are a few reasons why you might consider not paying a debt collection agency. Here are just a few you could consider:
You Don’t Have The Means
If you are unable to make any payments, then the answer to this question is simple! You literally cannot pay. However, this does not mean that you are not still liable for the debt. If you owe the debt and cannot pay, it is likely that the collection agency will move forward with other tactics of collecting. Consider reaching out to the company and let them know about your situation. Oftentimes, there are alternative ways to make payments that collection agencies will offer if you reach out.
The Debt Isn’t Yours
If you receive notice that a collection agency is attempting to recover payments for a debt that you owe… but the debt they reference isn’t yours, DON’T PAY. One of two things may have happened:
- The collection agency made a mistake in sending the notice to you
- It is a scam that is hoping you’re so scared of legal action that you’ll pay on something you don’t even owe.
Either way, do NOT make any payments until you are POSITIVE that the debt is yours. If you do make a payment, keep DETAILED information on who you paid money to, how much you paid, and the date that you made a payment.
You Are Hoping To Settle
If you know that you owe a debt, but you are hoping to settle, then not paying is recommended. Normally, a company will not settle with a person who is making their payments regularly. So if you are hoping to settle (and you know and understand the ins and outs of debt settlement), then not paying is a viable option. Again, do not just withhold payments thinking you might want to settle. Either work with a debt settlement company or have a laid-out plan for what debt settlement looks like for you.
Expired Statute of Limitations
Believe it or not, some debts have a statute of limitations. After this has expired, the debt collection agency can no longer file a lawsuit against you. So, while you are technically still liable for the debt, there won’t necessarily be legal repercussions against non-payment. If the statute of limitations is close, then you might also consider not paying to see if you can make it past the date. Do note that any time you make a payment, the statute of limitation resets to the date of your last payment.
No Proof of Ownership of Debt
Because the debt has changed hands, you may be wondering if the company contacting you actually owns the debt. If you aren’t sure, request documentation that the collection agency is actually in possession of your account. The burden of proof is on the debt collection agency. There has to be a physical trail that shows the collection agency legally purchased the account and owns the debt. They also have to be able to prove that the debt account they purchased is directly tied to you. Oftentimes this means that they need to have the original agreement signed by both you and the original creditor. Until this is provided, it is probably best not to make a payment.
Reasons You Should Pay A Collection Agency
The preceding reasons to not make a payment are all something to consider. However, they tend to be outliers — not the norm. Because of this, we also want to take a look at some reasons why you should pay a debt collection agency. As mentioned earlier, when a debt collection agency purchases a debt account, they legally own it and are legally enabled to collect on the debt. This means that you are, in fact, still liable for the debt that you owed to the original creditor — even though it has changed hands. With that in mind, here are a couple of reasons why you should pay a debt collection agency.
The Agency Proves They Own The Debt
If the collection agency can prove that the debt is yours and that they now own the debt account, then you probably want to pay it off. At the very least, you should try to figure out a way to resolve the debt, even if you need a payment alternative. Not doing so means that you will probably be facing a lawsuit at some point. Paying off the debt will stop the collection tactics.
You Want To Resolve The Issue Quickly
If you have the funds available and just want the nuisance of debt collection to go away, you can immediately pay off the account and everything will be resolved! As mentioned above, this will stop all contact with the debt collection agency, meaning you can move on with your life.
Regardless of what you decide, make sure you understand your situation fully before taking any action. And if you want to talk through your situation, give our team a call!