Can an Account Be Submitted to a Collection Agency?

If a creditor lacks the time or resources to collect debt from consumers on its own, it has the option of hiring a collection agency. Creditors who elicit the services of these companies either retain ownership of the account -- paying the debt collection company a percentage of what it recovers -- or selling the account in its entirety, relinquishing the debt. Not only can a creditor submit an account to a collection agency, but doing so is a fairly common business practice.

Delinquency and Collection

Creditors only submit accounts to collection agencies when the company has little hope of collecting the debt on its own. Thus, it's unlikely that any debts you owe will end up sold or transferred after one missed payment. The amount of time your creditor will wait for payment before turning your debt over to a professional debt collector, however, depends on the type of debt you owe. Credit card companies, for example, retain delinquent accounts for up to 180 days, while hospitals, which often lack in-house collection departments, turn unpaid account balances over to outside agencies much more quickly.

Secured vs. Unsecured

Creditors have little reason to turn secured debts over to outside collection agencies. Collection agencies are necessary when the creditor cannot collect the debt on its own. Because a secured debt grants your creditor a security interest in an asset you own, your creditor has the option to seize the asset rather than sell or transfer the account.

If you owe an unsecured debt, however, your creditor cannot seize your assets without first filing a lawsuit against you. Hiring a collection agency is more cost-efficient and less time-consuming for creditors than seeking legal recourse. The collection agency then decides whether or not to sue you.

Collection Activity

Debt collectors are typically aggressive in their debt-recovery efforts because, unlike original creditors, they have little interest in maintaining a professional relationship with the debtor. While consumers experience frequent collection calls and letters after having an account sent to a collection agency, the Fair Debt Collection Practices Act prohibits debt collectors from harassing or abusing debtors. Harassment includes, but is not limited to, using profanity, making threats the company cannot legally carry out and calling the debtor's friends and family members about the debt.

Paying Bad Debts

Once a creditor sells a debt you owe to a collection agency, you must pay the debt to the collection agency rather than to your creditor. Unfortunately, if the collection agency inserts a collection account on your credit report, the negative entry will remain for seven years from the day your creditor reported your original account as 180 days delinquent. Paying off the debt will neither improve your credit score nor cause the company to remove the collection account from your report.

Although creditors rarely "recall" debts from collection agencies, your creditor can reclaim ownership of your account if the debt was remanded to the collection agency in error.