Collection agencies buy or receive debts you have not paid and then try to recover that money on behalf of the original creditor or as debt owners themselves

A collection agency is a company hired by or that purchases unpaid debts — credit card balances, medical bills, personal loans, utility arrears — and contacts you to demand payment. They are not the original creditor. Your bank, hospital, or credit card company sold or assigned your debt to the agency, usually after you stopped paying for 90 to 180 days. The agency then owns the right to collect from you and keeps a percentage of what it recovers.

Collection agencies operate under federal law, primarily the Fair Debt Collection Practices Act (FDCPA), which restricts when, how often, and how they can contact you. They cannot threaten you, call before 8 a.m. or after 9 p.m., contact your employer (except to verify employment), or misrepresent the debt. Understanding what they can and cannot do protects you from harassment and helps you respond appropriately.

Key Takeaways

  • Collection agencies contact you by phone, mail, or email to demand payment on debts you stopped paying months earlier, and they may report the debt to credit bureaus.
  • Under the FDCPA, they cannot call before 8 a.m. or after 9 p.m., call repeatedly to harass you, contact your employer, or threaten legal action they do not intend to take.
  • You can send a written request to stop contact, and the agency must comply within five business days, though they may still pursue other collection methods like lawsuits.
  • Debt collection accounts on your credit report remain for seven years from the date you first fell behind, even if you pay the debt later.
  • If a collection agency sues you and wins, they can garnish your wages or place a lien on your property, depending on your state's laws.

How collection agencies obtain your debt

When you miss payments, your original creditor — the bank, credit card company, hospital, or utility — typically waits 90 to 180 days before transferring your account. The creditor either hires a collection agency to pursue the debt on commission, or sells the debt outright to an agency for a fraction of what you owe. Once sold, the agency owns the debt and keeps whatever it collects.

Some debts are sold multiple times. A debt might move from your original creditor to a first-party collector (the creditor's own collection department), then to a third-party agency, and eventually to a debt buyer who specializes in old accounts. Each time it changes hands, you may receive a new letter from a new company claiming to own your debt. This is legal, and each new owner has the right to collect.

The methods collection agencies use to contact you

Collection agencies contact you by phone, mail, email, and sometimes text message. Phone calls are their primary tool — they call repeatedly until you answer or until you request they stop. Letters arrive with threats of legal action, wage garnishment, or reporting to credit bureaus. Some agencies use skip-tracing services to locate you if you have moved or changed your phone number.

They may also contact family members, neighbors, or your employer — but only to locate you, not to discuss your debt. Under the FDCPA, they cannot tell anyone else that you owe money or that a collection agency is trying to reach you. If you answer and confirm your identity, they can discuss the debt with you directly. If you do not answer, they may leave a message asking you to call back but cannot reveal the reason for the call to anyone who picks up the phone.

What collection agencies cannot do under federal law

The FDCPA sets strict limits on collection tactics. Agencies cannot call you before 8 a.m. or after 9 p.m. in your time zone. They cannot call repeatedly or continuously with the intent to harass or annoy you. They cannot threaten to sue you unless they actually intend to file a lawsuit, and they cannot threaten to garnish your wages or seize your property unless the law in your state permits it and they have the legal right to do so.

They cannot misrepresent the debt — claiming you owe more than you do, that the debt is from a different creditor, or that failure to pay will result in arrest. They cannot contact your employer except to verify that you work there. They cannot tell third parties that you owe money. They cannot use profanity, make threats of violence, or contact you on your cell phone if you tell them it is a work phone and your employer forbids personal calls.

If you send a written request to stop contact, the agency must cease calling within five business days. However, stopping contact does not stop the debt or prevent the agency from suing you. It only stops the phone calls and letters.

How collection accounts affect your credit report

When a debt is placed with a collection agency, it appears on your credit report as a collection account. This entry severely damages your credit score and remains on your report for seven years from the date you first fell behind on the original account — not from the date the collection agency acquired it. Even if you pay the debt in full, the account stays on your report for the full seven years, though paid collections damage your score less than unpaid ones.

The presence of a collection account signals to lenders that you defaulted on a debt, making it harder to borrow money, rent an apartment, or sometimes even get hired for certain jobs. Some employers and landlords check credit reports as part of their screening process. The older the collection account, the less it damages your score, but it remains visible and reportable for the full seven-year period.

When collection agencies file lawsuits

If you do not pay and do not respond to collection efforts, the agency may file a lawsuit against you in small claims court (for smaller debts) or civil court (for larger amounts). The threshold varies by state — small claims courts typically handle debts under $5,000 to $10,000, though this varies. If the agency wins the lawsuit, it obtains a judgment, which is a court order stating you owe the money.

With a judgment, the agency can then pursue wage garnishment — instructing your employer to withhold a portion of your paycheck — or place a lien on your property, which gives the agency a claim against your home or car. The amount they can garnish and the property they can claim depend on your state's laws. Some states protect more of your wages or exempt certain property from collection; others are more lenient toward creditors.

You have the right to appear in court and defend yourself. You can argue that you do not owe the debt, that the statute of limitations has expired, or that the agency lacks proper documentation. Many people do not show up to court, which results in a default judgment against them. If you receive a court notice, responding is critical.

Your rights when dealing with collection agencies

You have the right to request written proof that you owe the debt. Send a letter to the collection agency within 30 days of first contact asking them to verify the debt. They must then provide documentation showing the original creditor, the amount owed, and your account number. If they cannot verify the debt, they must stop collection efforts.

You can dispute the debt if you believe it is not yours, has been paid, or the amount is wrong. Send a written dispute to the agency within 30 days of receiving their first letter. They must investigate and respond within 30 days. If they cannot verify the debt, they must remove it from your credit report.

You can request that the agency stop contacting you by sending a written letter. They must comply within five business days. You can also file a complaint with the Consumer Financial Protection Bureau (CFPB) if an agency violates the FDCPA or engages in unfair or deceptive practices. The CFPB investigates complaints and can take action against agencies that break the law.

Frequently Asked Questions

Can a collection agency call my workplace?

A collection agency can call your workplace only to verify that you work there — to confirm your employment, not to discuss your debt. They cannot tell your employer or coworkers that you owe money or that they are trying to collect from you. If your employer has a policy against personal calls, you can tell the agency your workplace forbids them, and they must stop calling there.

What happens if I ignore a collection agency?

Ignoring a collection agency does not make the debt go away. They will continue calling, sending letters, and reporting the debt to credit bureaus. If the debt is old enough and your state's statute of limitations has passed, they may not be able to sue you, but they can still report it and damage your credit. If they do sue and you ignore the court notice, you will lose by default and face wage garnishment or liens.

Can I negotiate with a collection agency to pay less?

Yes. Collection agencies often settle for less than the full amount owed because they bought the debt at a discount and any payment is profit. You can offer a lump sum or a payment plan. Get any settlement agreement in writing before you pay, specifying the amount, payment date, and that the debt will be marked as paid in full or settled. Without a written agreement, the agency may claim you still owe the difference.

Does paying a collection account remove it from my credit report?

Paying a collection account does not remove it from your credit report. It remains for seven years from the original delinquency date. However, a paid collection account damages your credit score less than an unpaid one, and some lenders view paid collections more favorably than unpaid ones. The account will eventually fall off your report after seven years regardless of whether you paid it.

How do I know if a collection agency is legitimate?

Legitimate collection agencies are licensed in your state and registered with the Better Business Bureau. You can verify their license through your state's attorney general or consumer protection office. Ask them for written proof of the debt, including the original creditor name, your account number, and the amount owed. Scam agencies often cannot provide this documentation or will refuse to do so. If you suspect fraud, file a complaint with the CFPB or your state's attorney general.