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What Happens if You Ignore Debt Collectors?

With a law degree under his belt and years of experience, Mark Scott set off to make the law more accessible to all. He decided to help people lost in the maze of legal terminology to find their way. Mark writes clear and concise pieces and gives simple advice that is easy to follow. On account of positive feedback from readers, he decided to dedicate more of his time to this goal and became a legal columnist. In his writings, Mark covers a wide array of topics, like how to seek legal counsel, or how to deal with different procedures. Furthermore, he directs his readers toward other trustworthy resources for more in-depth information.

What Happens if You Ignore Debt Collectors?

Times are tough right now. Millions of Americans are out of work, and bills are piling up. As a result, many people are dealing with questions that they never faced before. If the coronavirus has left you in a difficult financial situation, you might have many questions about debt and debt collection.

If an agency is looking to collect your debt, find a way to pay or try to work something out with the debt collection agency. Failing to pay your debt can, and will, result in a very negative outcome.

Ignoring Debt Does Not Make It Go Away

If there is a debt that you can not afford, you might be tempted to simply ignore the debt collector, and hope for the best. However, this is a terrible strategy. It will only lead to further complications in your life. Your debt will continue to follow you. While the entity that you owe your debt to will likely stop trying to collect it from you after a few months, that does not mean that you have won.

Instead, they have simply sent your debt on to a debt collection agency. The debt collection agency will take over the attempt to collect your debt. Handling debt collectors can be very difficult on your own. You might want to consider consulting with a lawyer at this point to protect yourself. Contacting a lawyer is especially important if you are disputing the legitimacy of the debt.

How Debt Collection Agencies Work

Debt collection agencies typically make their money through two different approaches. They can act as an intermediary for the creditor or they can buy the debt from the creditor.

Working for a Creditor

When a debt collection agency is collecting a debt on behalf of a creditor, they are working for a fee. Sometimes the fee is paid by the creditor. Other times, the debtor must pay the fee. However, for the latter to apply, there would have had to have been language to that effect in the original agreement between the parties.

The creditor has full discretion over whether they authorize the collection agency to negotiate a settlement for less than the whole amount that was owed and decides when the debt is fully paid. They may also direct the collection agency to file a lawsuit against the debtor if deemed appropriate.

Buying Debt

Buying debt tends to be a higher risk, higher reward endeavor. When a creditor does not feel like the odds of collecting debt are very high, they will sell the debt to a collection agency. The creditors often sell these debts for a small percentage of the amount owed, in an attempt to salvage something from the lost cause. Older debts are often sold, as they are far less likely to be paid.

The collection agencies may take a loss on many of the debts that they purchase. However, with how cheaply they are buying the debt, they only need to collect a percentage of the debts that they purchase.

They are also in a position to negotiate for a much smaller amount from the debtor that they are more likely to pay, from which they will still make a profit. If the collection agency buys the debt at 10 cents on the dollar, they could negotiate a settlement with the debtor for 20 cents on the dollar and still double their money.

The Possibility of a Smaller Settlement Is Not Worth the Risk

Hearing that you could possibly negotiate to pay a small percentage of the debt if enough time passes may tempt you to ignore the debt. However, the consequences of doing so are far too severe. If your debt goes to a collection agency, it will be reflected on your credit report.

Having this negative mark on your credit report will greatly decrease your chances of getting money from lenders in the future. A poor credit score can make renting as well as buying a home difficult. It can also present a challenge when you are looking for work.

Eventually, the unpaid debt will no longer impact your credit score, but not until years after the debt first goes to collections. In the meantime, your life will continue to be affected by unpaid debt.

If you can’t afford a debt, your best option is to immediately contact the creditor and see if you can come to some sort of an agreement. Depending on the situation, your persuasiveness, and luck, you might be able to either negotiate a reduced amount to pay, defer the payment to a later date, or settle on a payment schedule to slowly pay down the debt as you can afford.

Debt can be a terrible burden, but ignoring it will never help the matter. Be proactive when it comes to financial struggles. Doing so will give you the best chances at getting through the troubled times with a little damage done as possible.