Archive for category: Chapter 13

When the original creditor goes unpaid for a significant amount of time, the debt goes into what is called “collections.”  Many of us have heard of these agencies but are somewhat confused as to what exactly constitutes a collection agency.  A collection agency is an outside organization helping original creditors to collect on unpaid debts. Both the original creditor and the collection agency only have one thing in mind and that is to get the money that’s owed from the Debtor.  An original creditor such as a hospital, understand that the longer the bill goes unpaid, the less likely it is that they will actually recover the debt.  This is why it is important to original creditors to send the debt into collections as soon as a significant amount of time has gone by.  This is truly the primary purpose of a collection agency which is to contact the Debtor with letters, phones calls, and other forms of communication in hopes of acquiring the debt.  Representatives of these agencies should immediately state their name and what creditor they are calling on behalf of.  If they do not, you have the right to ask where they are calling from and what debt they are trying to collect on.

There are at least three different types of collection agencies, all of those with the same goal, which is to recover the amount of money owed by the Debtor.  First party collection agencies are often representatives from the original creditor, therefore it is not considered an outside agency.  These first party agencies will try to collect on the debt for several months in hopes of maintaining a more constructive customer relationship, since they are working for the original creditor.  As previously mentioned, once a significant amount of time has gone by, the original creditor or first party agencies will eventually pass the debt along to a collection agency.

Third party agencies are those that are not representatives or associated with the original contract.  This is often where the term collection agency comes from, as these are representatives trying to collect on the debt for the original creditor.  The original creditor may assign specific accounts of various Debtors to the agencies.  It will most likely only cost the original creditor communication fees for the agencies to contact the Debtors, unless the debt is successfully recovered.  If the debt is recovered and the Debtor agrees to pay the balance, then it depends on the contract between the creditor and the collection agency.  The agreement between the two determines what percentage each will obtain.

The last type of collection agency can be referred to as a “Debt Buyer.”  These Debt Buyers basically purchase debts from original creditors for pennies on the dollar.  Their goal is to collect the full balance from the Debtor, which may include interest.  These debt buyers come in the form of regular companies or may be reorganized as law firms. They can try to collect the debt by reaching out to other collection agencies if necessary.  This is because the debt buyer has actually purchased the charged off or delinquent debt from the original creditor.   Unlike first party agencies, the debt buyers are not as concerned about the relationship they maintain with the Debtor. Therefore, they tend to be the ones who call at all ours of the day and night, use harassing techniques and are beyond rude on the phone.

Collection agencies are required to abide by the Fair Debt Collections Act, so be sure if you feel you are being harassed or abused by creditors in an unfair manner, you educate yourself on what you need to do or contact a bankruptcy lawyer to learn more about your rights. If you file a bankruptcy the the bankruptcy filing enacts the automatic stay which prevents form creditors and collection agencies form still trying to contact you.