What happens if you don’t pay a collection agency? (2024)

The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

Ignoring a collection agency can negatively impact your credit, cause your debt to accrue interest and potentially result in a lawsuit. It’s ultimately better to pay or dispute a debt than avoid debt collection agencies altogether.

While it may be tempting to simply ignore debt collectors, that is generally a poor long-term strategy. Several potential consequences of not paying a collection agency include negative changes to your credit, continuing interest charges and even lawsuits. Even if you can’t pay the debt in full, it’s often best to work with the collection agency to establish a payment plan.

Collection agencies are unlikely to give up on a debt, especially if you owe a substantial amount. The stress of having a debt sent to collections can be tremendous, but waiting out a collection agency and hoping the problem goes away isn’t a viable option.

Read on to learn more about four possible consequences of not paying your debt—and at the end of the article, we’ll offer some strategies for dealing with debt collectors.

1. Interest charges

Even after your debt goes to collections, interest charges can continue to accrue. According to the Fair Debt Collection Practices Act (FDCPA), the collection agency can also charge any fees or interest rates outlined in your original contract—like the interest rate of a loan.

The collection agency cannot raise your interest rate or add new fees, but it may choose to continue generating interest or charge late fees if they were part of the original agreement. That means ignoring the debt collector doesn’t just fail to make your debt go away—in fact, the amount you owe may continue to grow.

2. Credit effects

Having an account sent to collections will lead to a derogatory mark on your credit report. Unfortunately, the mark will likely stay on your credit report for up to seven years even if you pay off your debt with the collection agency. It’s also possible that paying off your collection account may not improve your credit.

Nevertheless, paying off a collection account could help your credit situation in several ways:

• The account will be shown as “paid in full” or “settled.” When future creditors look at your report, a collection account that was paid in full sends a more positive signal than an unpaid debt.
• Updated scoring models, like the FICO® Score 10 Suite, may regard paid collection accounts differently. Changes to the way FICO calculates credit scores may mean that collection accounts paid in full won’t affect your credit
• Sticking to a payment plan could help establish good credit habits. As you work to pay off your debts, you’ll establish positive credit behaviors and work to fix your credit over time.

While you may not see an immediate improvement to your credit after paying off a collection account, it’s an excellent first step toward creating a more positive credit history for yourself. Over time, the impact of a collection account on your credit will start to decrease, which means that your new credit habits—paying on time each month and keeping utilization low, for instance—will start to have a strong effect.

3. Collector communications

Collection agencies will continue to try to reach out to you unless you pay your debt, particularly if you owe a significant amount. Collectors can contact you by phone, mail, fax, or email from 8 a.m. to 9 p.m. Additionally, they are allowed to contact your friends and family to try to locate you—so simply avoiding their phone calls is not a viable strategy.

Also, it’s important to know that collection agencies can continue to reach out to you as long as it is still within the statute of limitations. The statute of limitations, or how long your debt is considered valid, varies based on the type of debt and your state. That said, since the longest statute of limitations can be upward of 10 years, some collectors could call you long after the seven-year mark, which is when the collection account clears from your credit report.

According to federal debt collection laws, you do have the right to request in writing that agencies stop contacting you. If they don’t stop contacting you, the Consumer Credit Protection Act lets you file a complaint with the Consumer Financial Protection Bureau.

However, asking a collection agency to stop contacting you doesn’t mean the debt goes away. If you continue to ignore the debt, the collection agency may file a lawsuit.

4. Lawsuits

If a collection agency intends to get paid for your debt, it may decide to initiate a lawsuit against you. After the collection agency files the lawsuit with the state, you’ll receive a copy and a summons to appear in court.

You’ll want to consult with an attorney immediately, as failing to appear in court will mean you lose by default. In that case, the judge could award the collection agency the ability to do the following:

• Place a lien on your property, which can be a mark on your public record.
• Garnish your wages, which means your employer may give part of your paycheck to the collection agency before you receive it.
• Freeze some or all of the funds in your bank accounts.

If you do receive a court summons, work with a qualified lawyer to help build a case, which will hopefully lead to a settlement with the collection agency.

Can bankruptcy help me deal with a debt collection agency?

Bankruptcy is a legal process that can help businesses and individuals eliminate their debts and stave off collection agencies. There are multiple types of bankruptcy plans (called Chapters) that each come with several drawbacks. Bankruptcy can also drastically hurt your credit and stay on your report for 10 years, so it’s ultimately considered a last resort.

Chapter 7 bankruptcy

Chapter 13 bankruptcy

Chapter 13 bankruptcy covers many of the same debts covered by Chapter 7 bankruptcy. Here, filers work with bankruptcy courts and attorneys to create a repayment plan. After three to five years of routine payments, a filer’s bankruptcy will eventually be discharged. Chapter 13 doesn’t seek to liquidate your assets, so you ideally won’t have to sell your valuables.

It’s possible to avoid filing for bankruptcy altogether, which requires making a plan to deal with debt collectors rather than ignoring them.

Strategies to deal with debt collectors

Although it can be overwhelming to receive communication from a debt collector, you can formulate a plan to deal with debt collectors to improve your finances. With the right approach, you’ll be able to slowly fix your credit and get back on track.

Use the following approach to begin dealing with the collection agency:

• Set up a payment plan with the debt collector, or see if you can reach a debt settlement for a smaller amount of money.
• Start practicing good financial habits by keeping your credit utilization low, making payments every month and only spending what you can afford. Members of the “800 club,” Americans with credit scores of 800 or higher, often have great financial habits that you can take inspiration from.
• If the debt is not yours or has already been paid, you can start the dispute process and potentially get the collection mark removed from your credit report.

Over time, you can rebuild your credit and pay your debts. However, if the debt is illegitimate or misreported, you should immediately challenge it. To help with that process, consider working with the credit repair consultants at Lexington Law Firm, who can assist with credit repair and address negative items on your credit report.

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