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What Happens if You Don’t Pay a Collection Agency?

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In a Nutshell

Filing for bankruptcy relief does not mean that you have to give up everything you own. The purpose of filing a bankruptcy case is to get debt relief. The fresh start provided by filing a Chapter 7 bankruptcy would not be a real fresh start if the filer ends up losing all of their belongings. That's where the bankruptcy exemptions come in.

Written by Attorney John Coble
Updated August 7, 2020

What will happen if you don't pay a debt collector? The answer to that question depends on many different factors. The debt collector may go away. Usually, the debt collector will continue the phone calls to hound you until it has made progress on the debt collection. This article will discuss whether you should pay a debt collector or consider other options. In some situations, it makes sense not to pay the debt collection agencies.

Different Types of Debt Collectors

There are two types of debt collectors. The first is an agency that gets a contingency fee based on how much they are able to collect from you. This type of collector is acting on behalf of the original creditor to collect debt. The more money they collect from you, the higher the fee they earn from the original creditor. These collectors are often willing to settle your collection account for less than the full amount.

The other type of collector is a debt-buyer. These collectors buy your unpaid credit card and other debt from the original creditor for pennies on the dollar, typically after a charge-off. They can now collect the debt as the original creditor did. They can make a profit by collecting a much smaller amount than the original creditor since they paid so little for the debt. Hence, they will settle with you for less than the full amount of the debt. Any third-party debt collector is subject to the Fair Debt Collection Practices Act (FDCPA) regardless of whether it owns the collection account or not.

When It Is a Good Idea Not to Pay a Debt Collector?

It isn't a good idea to pay a debt collector the full amount due if you can't afford this amount. In most cases when you haven't paid the original creditor, it's because you couldn’t afford to pay it. It would be reasonable to assume that you also can’t afford to pay the debt collector. You have several options in this case. It is a good idea to take advantage of a free consultation with a nonprofit credit counselor. The credit counselor will educate you on your options.

The credit counselor will consider your unique situation and make a recommendation. You have options such as a debt management plan, a debt consolidation, debt settlement, or bankruptcy. With a debt management plan, the credit counselor will contact your creditors and negotiate a better interest rate and payment plan that will allow you to pay the full balance. With a debt consolidation, you will use a loan to pay off all your debts. With a debt settlement, either you or a paid negotiator will contact the debt collector and negotiate a settlement for less than the full amount due. The most powerful tool available is to discuss the matter with a bankruptcy attorney.

The Debt Is Time-Barred Because It Is Old Debt

If you're lucky, the statute of limitations will run out and the creditor will lose the right to sue you. Knowing the time frame of the statute of limitations isn't enough to determine if your debts are time-barred. The length of the statute of limitations is a matter of state law. The beginning date for the statute of limitations is also a matter of state law. Is the beginning date the day you signed for the debt? Is it the last time you made a payment on the debt? Is it the first time you didn’t make a payment? These issues can get complicated. Before depending on the statute of limitations, you need to consult with an attorney in your state. You may be able to get free legal advice by contacting legal aid or other resources. You could also contact your state attorney general's office. The Federal Trade Commission (FTC) provides good information about how to deal with collectors trying to collect time-barred debt. If you can prove a debt is time-barred, and it's not the original creditor that's trying to collect, you may be able to sue the creditor under the FDCPA. In this case, it’s a good idea to contact a consumer attorney.

It's important to realize that the time limitation for reporting to a credit bureau is different from the statute of limitations for collecting a debt. Generally, negative information can remain on your credit history for up to seven years. The longer the time has been since the negative information occurred, the lower the impact it will have on your credit score.

You Are Judgment Proof

If you are judgment proof, a collection agency is not going to be able to collect from you. Judgment proof is when you have no non-exempt assets or income that the debt collector could get through a wage garnishment if they sue you. For example, if they try a garnishment, they will be able to collect nothing because your income is exempt. You may be judgment proof and it may appear to be permanent. But, you could receive an unexpected windfall such as an inheritance or winning the lottery. In this case, you will no longer be judgment proof and the creditor will then be able to collect on any judgment they won while you were judgment proof. This is the case assuming that the judgment hasn't expired before your unexpected windfall. It's a good idea to contact legal aid to determine if you are judgment proof.

If you are judgment proof and the creditor is not the original creditor, you can send a written notice demanding a stop to the collector calls. If they do not stop contacting you, they may be in violation of the FDCPA. The FDCPA usually does not apply to the original creditor but does apply to collection companies and debt-buying companies.

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When You Should Not Ignore a Debt Collector

There are many problems with ignoring the debt collector calls. First, ignoring the debt collector will not make them stop sending letters or making collection calls. Debt collectors expect this tactic. Few people want to talk to collectors. If you ignore the letters, you will not be able to take advantage of the thirty days the creditor has to verify the debt. You need to know how the debt collector calculated the amount of the debt. You need to know if the debt collector really has the right to collect the debt. If you ignore the collector they will make a negative report to the credit reporting agencies regarding your credit report. This will hurt your credit score. The longer you ignore the debt collector and don't pay the debt, the larger your debt will get. Often, you can get a better deal with a debt collector than the original creditor. By ignoring the debt collector, you are losing your opportunity to get a better settlement.

The worst thing that can happen when ignoring the debt collector is that the original creditor or the collector may sue you. If you do not have a good defense, they will get a judgment against you. After getting the judgment, they may record it and thereby create a lien that attaches to your property. The creditors favorite way to collect is to get cash right out of your paycheck. That is, they will garnish you.

If a creditor sues you, don't give the creditor a free ride. Make them prove that you owe the debt. Sure, you may owe them something, but how do you know that the amount is correct? If the creditor is a debt-buyer, you want the paper-work that shows that the creditor has the right to sue you. Don't just fold because you have been sued. You may want to use a lawyer. If you can not afford a lawyer, contact legal aid. You may end up saving yourself a lot of money. You might even win the case. The debtor doesn't win very often, but it happens more often than you might think.

How Bankruptcy Can Help You With a Collection Agency

Bankruptcy is the most powerful tool in your arsenal to deal with any debt. It doesn't matter if you're dealing with the original creditor or a debt collector. One myth about bankruptcy is that you will lose your stuff if you file. The fact is, very few people lose anything but their debt when they file bankruptcy.

Regardless of the type of debt the debt collector is trying to collect, the bankruptcy automatic stay stops collection activities the minute you file. The stay remains in effect until either the debt is eliminated by discharge or the case is dismissed by the court. Whether the debt is discharged depends on the type of debt and the type of bankruptcy you have filed.

A Chapter 7 bankruptcy will eliminate most of your debts in three to four months. A Chapter 7 bankruptcy will not eliminate most secured debts unless you surrender the collateral. You can't discharge certain unsecured debts, such as some taxes and student loans, in a Chapter 7 bankruptcy.

Chapter 13 bankruptcies are another option for consumers. Chapter 13 bankruptcies usually last thirty-six to sixty months. They are in essence, debt consolidations supervised by the bankruptcy court. Unlike other debt consolidations, these payment plans can include all types of debts except long-term secured debts. Since Chapter 13 bankruptcies involve a payment plan, they can be used to fully pay these debts that would otherwise be nondischargeable

Debt collectors attempt to collect all different types of debts. Some collectors actually specialize in collecting nondischargeable debts such as student loans. What type of debt the collectors are trying to collect will have some impact on the determination of what chapter of bankruptcy to consider. The decision is never obvious. For example, your biggest debt problem could be a student loan for which a Chapter 7 can only help you if the court finds it would be an undue hardship not to eliminate your student loans. Still, it may be the case that a Chapter 7 bankruptcy is the best choice because it could eliminate your other debts while leaving the student loans for an alternative solution outside of bankruptcy. One alternative solution for federally guaranteed student loans is an income-based repayment plan. With these plans, you pay a certain percentage of your income for a term of years. Income-based repayment plans forgive your remaining student debt at the end of the term.

The debt solution for you is completely dependent on your particular financial situation. Like fingerprints, everyone has a unique financial situation. Careful consideration is required before choosing any debt relief solution.


If you don't pay a collection agency, the agency will send the matter back to the original creditor unless the collection agency owns the debt. If the collection agency owns the debt, they may send the matter to another collection agency. Often, the collection agency or the original creditor will sue you. Regardless of whether you owe the debt or not, you should answer any lawsuit against you and make the creditor prove their case. Before going to court, it's a good idea to discuss the matter with expert professionals.

At some point in the collections process, ideally before being sued, discuss the situation with a nonprofit credit counseling agency or a bankruptcy attorney. Nonprofit credit counselors are the best place to start. In cases where you have a straight forward, Upsolve provides a free tool to help you file your own Chapter 7 bankruptcy. In more complicated cases, it's good to contact an experienced bankruptcy attorney in your area. 

Written By:

Attorney John Coble


John Coble has practiced as both a CPA and an Attorney. John's legal specialties were tax law and bankruptcy law. Before starting his own firm, John worked for law offices, accounting firms, and one of America's largest banks. John handled almost 1,500 bankruptcy cases in the eig... read more about Attorney John Coble

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