Collection agencies work on behalf of creditors to recover debts that aren't secured by property. A collection agency either collects debt on behalf of the original creditor and retains a percentage of the amount collected, or purchases debts from creditors for less than what the consumer owes and profits by collecting the full amount from the consumer. Collection methods vary depending on company policy and the laws in the debtor's state of residence.
Telephone Calls
A collection agency's primary collection tool is the telephone. Although the Fair Debt Collection Practices Act, or FDCPA, prohibits debt collectors from calling consumers so frequently that doing so constitutes harassment, collection agencies interpret harassment differently. This often results in repeated telephone calls from collection agencies. The hope is that, over time, you'll tire of your telephone constantly ringing and agree to a payment plan. A collection agency can only use telephone calls as a debt recovery method if you haven't requested, in writing, that the company stop calling you.
Credit Reporting
Collection agencies report your accounts to the credit bureaus. Collection accounts negatively impact your credit score; the Fair Credit Reporting Act notes that such accounts can remain a part of your credit history for up to seven years.
No law requires that collection agencies report consumer accounts immediately. Thus, debt recovery companies may use the threat of negative credit reporting to coerce debtors into making payment arrangements. In cases like these, the collection agency agrees not to report the account to the credit bureaus --- provided the consumer pays the debt as requested.
Settlement Offers
By offering you the chance to pay less than what you owe yet still satisfy your obligations, the collection agency makes paying the debt less of a financial challenge. This process is known as "debt settlement." Collection agencies often utilize debt settlement offers to collect old debts that, due to the debtor's state's laws, the company cannot file a lawsuit over.
Garnishment
A collection agency typically can't recover a debt unless you agree to make voluntary payments. Garnishment is an exception to this rule. If the company obtains a court judgment against you by winning a debt collection lawsuit, it can garnish both your wages and your bank accounts in an effort to recover the amount you owe without your consent.
Real Estate Liens
A collection agency that holds a court judgment against you can place a lien against real estate you own. Although the lien doesn't force you to pay off the debt immediately, it does restrict you from refinancing your home without first paying off the full amount of the judgment. If you place your home on the market, you may also face difficulty selling the property without first paying off the lien. Unless you don't mind the presence of the lien and purchase your home using cash, you won't be able to obtain financing to purchase the property until the lien is removed from the property through payment.
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