What Happens When You Don't Pay Bills in Collections?

If you don't pay a bill, your creditor will either send that bill to its in-house collection department or transfer the debt to an outside agency for recovery. While a bill is technically "in collections" regardless of whether a creditor's collection department or third-party collection agency owns the debt, the laws regarding debt recovery vary slightly depending on who owns the account.

Significance

Leaving bills unpaid damages your credit rating. The extent of that damage, however, differs depending on which creditor is actively collecting the account. If the account rests with an in-house collection agency, your credit report will reflect the series of missed payments leading up to the account being transferred to the collection department. If an outside collection agency owns the debt, your credit report will reflect both the original creditor's missed payment reports and an additional collection account from the third-party agency.

Facts

You will receive telephone calls and letters requesting immediate payment of the debt regardless of who owns the account. While the Fair Debt Collection Practices Act protects you from threats and harassment from collection agencies during the debt recovery process, the FDCPA's consumer protection regulations don't extend to in-house collection agencies. Because creditors eventually transfer even in-house collection accounts to outside collection agencies, this leaves many consumers confused about their actual rights during the collection process.

Time Frame

As long as your original creditor maintains its ownership of your debt, it can sue you at any time. Once it transfers the unpaid bill to a collection agency, however, the collection agency can only legally file a lawsuit for a limited period of time. Once your state's statute of limitations for debt collection expires, the collection agency cannot legally file a lawsuit against you unless you make a payment on the debt -- thus reinstating the statute of limitations for collection.

Effects

Any creditor that wins a judgment against you through a lawsuit can enforce the debt to the full extent of the law in your state. Although state laws vary, enforcement can leave you subject to a wage garnishment or bank account garnishment order. Some states, such as California, allow creditors holding a judgment to place real estate liens against debtors' homes.

Considerations

Debts don't disappear when you refuse to pay them. Just as in-house collection departments eventually transfer debts to third-party collection agencies, those third-party agencies also sell uncollectible debts to other debt buyers. Thus, an unpaid bill can continue to haunt you for many years to come. In addition, if the original account you failed to pay allowed for the accrual of interest, such as a credit card debt, your debt will continue to grow until you either pay it in full or negotiate a debt settlement agreement.