Can a Company Turn a Debt Over to a Collection Agency If Payment Is Being Made?

Sometimes, a creditor will no longer wish to attempt to collect on a debt and will decide to turn the debt over to a collection agency. Usually, a creditor will only do this if the debt is delinquent and the company believes collecting on the debt will be difficult. However, a creditor is legally allowed to sell a debt at anytime, including to a collection agency, even if the debtor is paying on time.

Debt Contracts

A consumer usually will sign a document in which he agrees to make repayments on the amount of money he took out according to a specific timeline and at a specific rate of interest. This debt may or may not be communicated to a credit reporting agency. Unless the contract specifically forbids the creditor from selling the debt to someone else, this is the creditor's right.

Collection Agencies

Creditors will often use collection agencies -- firms that specialize in the collection of debt -- to incur payment from debtors. These agencies may act as the creditor's representative or they may be the creditor's customer, buying the debt directly from them. In either case, the debt collection company retains all the rights of the original creditor once he has purchased the debt, as specified by the contract.

Additional Fees and Penalties

Once a debt has been turned over to another party, the contract remains valid. The new owner of the debt is not allowed to change the terms of the contract to reflect the fact that the debt has been sold. This means the collection agency is not allowed to charge the borrower new penalties on the debt, such as new fees or a higher rate of interest on the principal he took out.

Considerations

While a creditor can legally turn over a debt to a collection agency, if the person is paying the debt off on time, it likely will not do so. Turning a debt over to a collection agency costs the creditor money. If the creditor hires the collection agency, it has the pay the agency a commission. If it sells the debt outright, it will receive only partial payment for the debt. If the debtor is paying, the creditor will likely want to hang on to the debt.