If a debt goes unpaid for a long period of time, it can be sent to collections. This usually means that the debt owed is written off by the original creditor and sold to a collection agency. At the time the original creditor sells the debt, the debtor’s credit is negatively affected because the unpaid debt has already been reported to the credit bureaus. The collection agency buys the debt at a fraction of the original debt owed, and then tries to collect the debt using various methods.
Once a person’s unpaid debt is reported to the credit bureaus as unpaid, the person is unlikely to be approved for new lines of credit or loans. In some situations, having debts in collections can also affect a person’s ability to get a job or rent an apartment. An unpaid debt can also keep increasing through the addition of interest charges.
In addition to the negative impact on a person’s credit, when a debt is sent to collections, the person may begin to be harassed by debt collectors trying to collect on the debt they purchased. The Fair Debt Collection Practices Act protects consumers from unfair and abusive collections practices. In addition, the law provides a way for the consumer to sue the debt collector if the debt collector has harassed the consumer in attempting to collect on the debt.
If a debt is sent to collections, the consumer can pay the underlying debt and any applicable interest charges in order to start rehabilitating his or her credit score. However, there may be instances in which the debt itself is not properly attributed to the consumer. If there is a mistake and the consumer does not owe the debt, the consumer may challenge the debt in court.
A person whose debt is in collections can also arrange to make payments to a debt collector in installments. This can be a good way for the person to clear an old debt without it being too much of a financial burden. However, arranging to make payments does not guarantee that a debt will not be sold again to another collection agency. If the debt is sold, the debtor may find him or herself in new negotiations for the repayment terms, unless the original repayment terms were arranged with the help of an experienced attorney who ensured some rights for the debtor.
Sometimes, a consumer who owes a lot in unpaid bills may decide that the best way to handle the situation is to file for bankruptcy. If the debts qualify for discharge in bankruptcy, then filing for bankruptcy can help the filer reset the button and begin to rebuild his or her credit. However, bankruptcy also negatively affects a person’s credit, and before a person files for bankruptcy, he or she should consider whether filing will leave him or her at more of a disadvantage than allowing the debt to go into collections.
Contact an Experienced Attorney
If you are experiencing financial troubles and bankruptcy seems like the way out, you need to speak with an experienced attorney. Our attorneys can discuss the legal issues that will arise with bankruptcy and how they will affect you, in addition to debt settlement and other ways you can manage your debt. Call us at Resnick Law, P.C., in Bloomfield Hills and Detroit, Michigan to schedule a consultation.