What Happens When Your Name Is Sent to the Collection Agency?

Creditors periodically sell non-performing accounts to collection agencies in bundles. This minimizes the creditor's losses since the collection agency pays for each delinquent account it receives. The creditor may then claim the remaining unpaid balance as a tax loss. Although creditors attempt to collect debts before selling them, you can expect more aggressive collection efforts from a collection agency than your original creditor.

Skip Tracing

When creditors turn over account bundles, some accounts contain complete information on the debtor while some may contain little more than the individual's name and how much he owes. A collection agency needs more personal information about you other than your name in order to contact you about the debt.

Collection agencies research debtors through a process known as "skip tracing." The goal of skip tracing is to locate individuals who do not wish to be found. Debt collectors have the option of hiring an outside agency to locate you or of conducting the skip tracing themselves by searching pubic records databases and telephoning your friends and family members in an effort to obtain your contact information.

Collection Activity

Once the collection agency has your name and address, debt collectors will begin sending you payment notices through the mail and calling your home. Even if the collection agency's primarily contacts debtors via phone rather than through collection letters, the Fair Debt Collection Practices Act requires the collector to send you written notification specifying the amount you owe and notifying you of your right to request proof of the debt and the name and address of the account's original creditor.

Credit Reporting

Once the collection agency has your personal information, such as your name, date of birth and address, it can report the account to the credit reporting agencies at any time. This leaves a record on your credit report of the derogatory debt that federal law mandates can remain there for up to seven years. Reports from collection agencies damage your credit scores.

Considerations

Some creditors merely hire collection agencies to collect debts on a contingency basis and award the collector a portion of the recovered balance. Should this occur, the original creditor still legally owes the debt. Depending on your original creditor's policies, you may be able to make payments directly to your original creditor rather than dealing with the collection agency. Once a creditor sells your debt, however, it no longer legally owns the account and cannot accept payments from you.