If you do not pay a bill, it may go into collections. This process can involve a collections department of the original creditor, whether it is a credit card company, doctor's office, day care center, utility company or other business. However, many debts deemed "uncollectable" are turned over to an outside firm known as a collection agency. In the United States, bill collectors must follow specific processes under federal law, according to the Federal Trade Commission. However, as a delinquent debtor you can also be legally subject to a number of potential financial penalties.
Misconceptions
If you took out a debt honestly, you cannot go to jail. Some unscrupulous debt collectors may try to scare you by threatening jail, but this is illegal under the Fair Debt Collection Practices Act (FDCPA). The FDCPA is enforced by the Federal Trade Commission as well as your local civil court, but you must report such incidents.
Considerations
Any creditor to whom you owe past due funds can legally report this to your credit reports, according to the Federal Trade Commission. This includes the original creditor and/or any collection agency that company might hire to pursue debt repayment. The primary credit reporting agencies in the United States are Equifax, Experian and TransUnion. The Fair Credit Reporting Act (FCRA), also governed by the Federal Trade Commission, regulates the actions behind negative credit reports.
Possibility of Lawsuits
You can be sued in your local court for an unpaid debt that is in the collections process. However, this cannot automatically happen; a representative of the creditor or its collection agency must first file papers in your local court. A sheriff's deputy or process server will then serve you the papers, requesting that you go to court on a certain date. You don't have to show up, but if you don't a default judgment may be entered against you. This fact can also be noted on your credit reports.
Possible Wage Garnishments
A portion of your wages can be garnished to repay past due debts. However, this too cannot automatically happen. The creditor or collection agency must first win a lawsuit against you. Then its representative must petition the case judge to order your wages garnished to repay the debt. If a garnishment is granted, this is another matter of public record that can negatively affect your credit credit.
Negative Credit Reporting Time Frames
Most past due "negative" debts are noted on your credit reports for seven years from the date of initial delinquency or court action, according to Experian. This includes late payments, judgments and garnishments. Even if you pay the debt that was in the collections process, your file will simply report that a "bad debt" was eventually paid in full. It will still take up to seven years from the initial delinquency date for the information to be purged from your credit files.
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