What Happens If You Do Not Pay a Debt When in Collections?

You remain responsible for paying off your delinquent debts -- even if your original creditor charges off the debt and sends it to a collection agency. Depending on the types of debt you owe and the collection agency's policies, ignoring the debt may carry significant consequences and result in legal recourse from the company or the debt steadily increasing over time.

Third-party Transfer

Just because your debt is in collections that does not mean that a collection agency owns the debt. Some original creditors, such as credit card companies, have in-house collection departments that take over responsibility for collecting on delinquent accounts. While the company still reports your missed payments to the credit bureaus, owing a debt held by an in-house collection department does not result in a collection account on your credit report.

If you do not pay the debt, however, the creditor's in-house collection department will eventually sell or transfer the debt to a legitimate third-party collection agency. The outside collection company will report the debt to the credit bureaus -- damaging your credit rating.

Additional Charges

If your contract with the original creditor gave your creditor the right to add interest charges to your debt, the Fair Debt Collection Practices Act extends the same right to any collection agency that subsequently purchases the account. Thus, not paying your debt results in the amount you owe steadily increasing.

Even if your original creditor did not charge you interest, that fact does not stop the collection agency from adding fees to your account. Like interest charges, collection fees result in your debt growing over time.

Collection Activity

As soon as your unpaid debt falls into collections, collection activity commences. Initial collection activity usually consists of frequent letters and telephone calls from debt collectors. While the Fair Debt Collection Practices Act prohibits third-party collection agencies from contacting you via telephone at any time or place you specify is inconvenient, such as at your place of employment, in-house collection agencies are not bound by the FDCPA -- leaving them free to contact you as they see fit.

Lawsuits

While collection lawsuits are typically a last resort for debt recovery agencies, they do occur. The more you owe, the greater your chances of facing a collection lawsuit. When a collection agency wins the lawsuit, the resulting court judgment sometimes gives it the right to garnish your bank accounts and wages -- depending upon the laws in your state. Judgments also appear on your credit report and cause further damage to your credit rating.