What Will Happen After a Lender Sells Your Debt to a Collection Agency?

What Will Happen After a Lender Sells Your Debt to a Collection Agency?


13 Min Read

If your debt has become too much of a burden that you can no longer bear, you’re likely to face collection actions against you. This means that your creditor will report your unpaid debt as delinquent when it becomes 30 to 180 days past due. Then, they will try to sell your account to a collection agency in order to cover the loss.

However, even if your debt is sold, it’s still the money you owe to a creditor. Let’s take a look at what a sold debt is, your rights and responsibilities when dealing with collectors, and tips on effective debt management.

Key Takeaways:

  • Sold debt means a creditor sells your account to a debt collection agency in order to offset financial losses;
  • You still owe the money to the creditor, even after your debt account was sold to collectors. You remain a debtor until the debt is forgiven or fully repaid;
  • There are some restrictions that can limit the collector’s ability to charge money from you;
  • The Fair Debt Collection Practices Act is the document that regulates collection companies to protect customers from deceptive, aggressive, unfair, and illegal practices that violate their rights;
  • Knowing your rights and responsibilities will help you build healthy communication with debt collectors, protect yourself from abusive actions, and avoid stress.

Everything You Should Know about Debt Sales

Debt sales take place when a creditor considers it a sunk cost. Once lenders think they have a low chance of getting their money back from you, they start looking for other ways to compensate for financial losses.

Why Do Lenders Sell Debts?

Lenders themselves don’t usually specialize in debt collections when loans are past due. Therefore, they prefer to sell delinquent accounts to professional collection agencies when the debts become unprofitable to carry. By doing this, they can recoup at least a portion of what they lent to a debtor.

Most collectors buy debts for a certain percentage of the amount owed. Then, they hope to collect the original sum from a borrower, which may result in a potentially high profit.


Suppose that Ryan took out a loan from an ABC bank and owes it $500. Once the debt becomes 180 days past due, the bank considers it a sunk cost and sells Ryan’s account to the DFG collection agency for $100. If the DFG will be able to collect the full $500 from Ryan, it will make profit of $400.

Where Do Collectors Buy Debts?

Some collection agencies work with lenders on a commission basis and buy debt accounts directly from financial institutions. There are also websites like Triton that act as full-scale marketplaces and provide various debt-collection tips and tools. Collections agencies can create profiles there and choose debts they want to buy from the multiple portfolios on the list.

However, platforms like Triton usually sell debts in large packages. This may result in lack of debt documentation. If it happens, an agency can’t collect money from a debtor.

What Does It Mean to a Borrower When Their Debt Is Sold?

From the borrower’s perspective, selling debt means credit consequences and persistent debt collection attempts. This typically includes receiving calls, messages, and email letters from collection agency representatives. As a result, borrowers may experience increased psychological pressure and stress. If the debt is not time-barred, a collector can take more severe legal measures, provided that all the amicable methods do not work.

Here’s what you can expect as a borrower if you refuse to repay what you owe:

  • A collector may report your debt to credit bureaus. This entry will stay on your credit report for 7 years and result in a credit score drop;
  • You may experience difficulties in obtaining new loans in the future;
  • It may be difficult for you to find a new job or rent a house;
  • A collection agency may sue you;
  • In some states, you may lose your property or face wage garnishment by judgment.

However, there’s the Fair Debt Collection Practices Act that regulates the industry in order to protect borrowers from illegal actions.

Your Responsibilities and Rights

Below are the answers to the frequently asked questions regarding debt collection. Knowing them will help you understand your rights and responsibilities and self-defense from unfair and offensive practices.

Are You Obligated to Pay If a Creditor Sells Your Debt?

The fact that the debt was sold to a collection agency doesn’t make it canceled, paid off, or forgiven. This is still your financial obligation that you need to cover according to the terms of your loan agreement.

However, there are several restrictions that may affect the collector’s ability to get money from you. First is when your loan reaches the statute of limitations threshold, meaning that an agency can’t take you to court to collect this debt through a judgment anymore. The second situation is when a collector can’t prove the debt is really yours.

What If I Don’t Owe the Sold Debt?

A collector can only try to force you to pay off the debt if they can prove it’s really yours. To do this, the company must provide supporting documents showing that you obtained this loan and haven’t repaid it yet. If you can’t recognize the debt, ask a collector to send you a Debt Validation Letter.

Even when it comes to a legitimate debt, this option is worth trying. As the debt is resold, the information can get lost or deleted, especially if some time has already passed. If the agency won’t be able to prove you really owe the money, you’re not obliged to pay.

Is It Possible to Dispute the Debt That Was Sold to a Collection Agency?

Sure, it’s possible under certain conditions. For example, if you don’t recognize the debt after getting all the verification documents, you can send a dispute letter to the agency within 30 days from the moment you get notified about your sold account. When the company receives your letter, it must stop collecting your debt until it provides written debt verification, such as the original bill for the amount you owe.

If you don’t send any dispute letter within 30 days, collectors will assume it legitimate and will be able to take legal actions against you.

How Will I Know That a Creditor Sold My Debt to a Collection Agency?

Original creditors are most likely to inform borrowers about the debt sale by phone or in writing. The Fair Debt Collection Practices Act also obliges collection agencies to send borrowers notification letters within at least five days of their first communication. This written notice will specify the total amount you owe, the name of the creditor, and instructions regarding your right to dispute your debt. Collectors may also contact you by phone, but the written notification is still mandatory.

get a quick loan online

Special Cases of Dealing with Debt Collectors

Below is an explanation of some specific situations that may arise when you deal with debt collectors.

Is It Legal for a Collection Agency to Buy Your Debt and Come After You?

Collection agencies have a legal right to buy delinquent accounts and try to collect payments from borrowers. However, they need to stick to several rules and regulations outlined in the Fair Debt Collection Practices Act. Thus, a collector must notify you 5 days before the first contact and verify the validity of the debt. Collectors are not allowed to discuss your financial situation with third parties, such as your family members or employers. However, they may call them to specify your contact details.

What Will Happen If a Collection Agency Takes Me to Court?

When a collection agency files a lawsuit against you, it must send you legal papers, such as a copy of the complaint and a summons. They serve as notifications and also contain information about the time you have to file a formal response in court.

Ignoring the summons is the worst strategy you can choose. You need to respond to a lawsuit and show up in court to be able to work out a settlement or other resolution. If you ignore the lawsuit or don’t respond to it timely, the collector is most likely to win a case and get a court order that allows them to use stronger tools against you.

Can a Collection Agency Take Money from My Wage or Benefits?

The answer is it depends on your state. In most cases, a collection agency can garnish wages and benefits, but only if it has a corresponding court order. To get one, the collector needs to prove you owe the debt and win the court case. Some states, such as Texas, prohibit wage garnishment or property repossession for consumer debt repayment.

State and federal laws also set limits on how much a creditor or a collector can withhold from your salary or benefits. The amount is calculated based on your disposable earnings, which is your income after all the required deductions. The US Department of Labor’s Fact Sheet #30 says that for ordinary garnishments, a collector can withhold the lesser of the following figures:

  • 25% of the employee’s disposable earnings;
  • The amount by which an employee’s disposable earnings are greater than 30 times the federal minimum wage (currently $7.25 an hour).

There are also benefits that are exempt from garnishment (exceptions include student loans, tax delinquency, and child support). They are as follows:

  • Federal student aid;
  • Veterans benefits;
  • Social Security;
  • Supplemental Security Income;
  • Military annuities and survivors’ benefits;
  • Railroad retirement benefits;
  • Benefits from the Office of Personnel Management;
  • Federal emergency disaster assistance.

Are There Any Rules Regarding Where and When Debt Collectors Can Contact Me?

Sure, agencies and attorneys hired to collect debts must stick to the protocols of the FDCPA. These rules outline the following restrictions:

  • Debt collectors are not allowed to contact you before 8 a.m. or after 9 p.m., except for situations when they know this time is more convenient to speak for a debtor;
  • If there’s a reason to believe that you are prohibited from personal communications at work, they can’t call you while you’re there;
  • Collectors have to terminate the call if you tell them it’s inconvenient for you to speak at the moment.

Are Debt Collectors Allowed to Report My Debt to Credit Reporting Bureaus?

Yes, collection companies can report you unpaid debt to major credit bureaus. However, they need to notify you first. There are two ways they can do it. The first option is to contact you in person or by phone. The second way is to send you an email or electronic message about your debt and wait for 14 days to make sure it doesn’t return as undeliverable. Once your account is reported to credit bureaus, it will stay on your credit report for 7 years.

Read more: Can You Have a 700 Credit Score with Collections?

What Debt Collectors Can’t Do?

Besides the rules that regulate where and when debt collectors can communicate with you about your debt, there are a few more limitations. Here are 5 things debt collectors are forbidden to do.

  1. Threaten you with arrest. Keep in mind that collection agencies can’t jail you because of your unpaid debt. However, if a collector sends you a legitimate summons and you don’t appear in court, a judge can issue an arrest warrant. This is also true for any unpaid court fines related to your debt.
  2. Provide false information about who they are. A debt collector is prohibited from pretending to work for a government agency or using false names and identifications. They also can’t say they work for a consumer reporting agency.
  3. Collect what you don’t owe. Whether it’s a debt you can’t recognize or an amount that exceeds what you really owe, a collector can’t force you to repay it unless they verify the debt’s validity or justify the sum. Just keep in mind that your debt may be higher than you expect due to extra fees applied by an original creditor.
  4. Shame you publicly and harass you.Debt collectors can’t publicize the names of debtors in social media or newspapers. They are also forbidden to threaten you with violence or harm and use obscene or profane language.
  5. Tell third parties about your financial problems. A collector can call your spouse, attorney, employer, friends, or family members only to track you down. They are not allowed to discuss your debts and financial issues with your loved ones or colleagues.

What Should I Do If a Debt Collector Uses Illegal Actions Against Me?

There are several self-defense options to choose from if you think a debt collector is using unfair practices against you. Turn to the Consumer Financial Protection Bureau, contact the Federal Trade Commission, or rely on your state’s attorney general. Keep in mind that you can even sue an agency that violates FDCPA. To do this, you need to file a legal action within one year of when the debt collector violates the law.

Things to Know about Managing Debt in Collection

Sold debt is quite different from your regular debt in terms of possible consequences, management strategies, and statute of limitations. Let’s break down some key points.

Do I Need to Pay off My Time-Barred Debt?

In fact, it’s up to you. A time-barred debt is an unpaid financial liability with an expired statute of limitation. This status means that a debt collector can’t sue you for such a financial obligation. However, debt collectors may keep contacting you about this old debt unless you send them a letter and tell them to stop.

Even if you pay nothing, the agency can’t take you to court. Some states may even prohibit collection calls for time-barred debts. However, such a debt will still affect your credit score and stay on your credit report for 7 years.


Each state has its own rules regarding when your debt becomes time-barred. In some of them, your old financial liability may be considered “revived” if you make any payment on it or even acknowledge a collector in writing that you owe this debt. This means that a new statute of limitations period begins, and a creditor may be able to sue you. It’s recommended to consult with an attorney before making any payments on time-barred debts.

Can a Creditor Forgive My Overdue Debt?

Yes, this may be possible. Collectors may agree to settle your account for a lesser amount than you owe, meaning that a portion of your debt will be forgiven. However, they are not obliged to, so whether to agree or not is solely at their discretion. Also, keep in mind that any forgiven debt of over $600 will be subject to taxes as it’s considered your taxable income.

Useful tip:

Always enter into a written agreement with debt collectors before transferring money to them. Otherwise, they may pretend that there was no arrangement between you two and will try to get the remaining amount from you.

Tips on Paying off Sold Debt

Here are some useful tips to help you handle debt in collection and get out of it without much stress:

  • Review your debt. Make sure you can recognize it, and it’s really unpaid. Then, check whether or not the statute of limitations has passed. Also, pay attention to the collector’s legality;
  • Determine how much you can pay. Calculate the amount you can comfortably put toward your delinquent debt each month. This way, it will be easier for you to negotiate a repayment plan or schedule that will not overburden your budget;
  • Stay in touch with a creditor or debt collector. Collectors usually accommodate those borrowers who are willing to pay their debts. They may agree to your terms, believing that they would rather receive the money in small installments over a longer period than not receive it at all;
  • Know your rights. Some debt collection agencies may use aggressive and offensive tactics to intimidate you and force you to pay. Make sure you know what collectors can and can’t do, but don’t forget that rights always come with responsibilities;
  • Don’t ignore lawsuits. If a collector sues you, ignoring a lawsuit is one of the worst tactics that always results in losing a court case. This way, you may face court fines, wage garnishment, or even property repossession. Response to lawsuits and always show up in court if you receive a summons;
  • Turn to a credit counselor. It may be difficult to struggle on your own, especially if you’re not familiar with the process and the legislation that governs it. A credit counselor can communicate with creditors and collectors instead of you, find the cheapest way out of your problem, or help you settle a reasonable debt management plan.
  • Find ways to increase your income. Consider a side gig or sell the stuff you don’t use. Then, use all the spare money to cover your unpaid debt. You may also review your budgeting strategy and identify areas where you can cut costs.

See also: How to Get a Debt Consolidation Loan for a Bad Credit Score

Bottom Line

Creditors are allowed to sell your debt to collection companies for a portion of the amount you owe. Even if your debt was sold, you’re still obliged to repay it. Otherwise, it can significantly affect your credit score and result in a lawsuit against you.

Still, debt collectors must stick to the rules outlined in the Fair Debt Collection Practices Act. This document sets restrictions to protect debtors from offensive collection practices. Therefore, you need to know your rights and responsibilities. If you believe you have become a victim of an unfair collector, contact the CFPB, the FTC, or your state’s attorney general.

Secure an Online Quick Cash Loan in Minutes!Apply

Kerry Vetter

Written by Kerry Vetter

Written by Kerry Vetter

Kerry is a finance expert thanks to her Boston College education during the 1990s. Today she shares this valuable knowledge through the pen and online from her home in Chestnut Hill, Massachusetts. The years of experience results in relevant, practical and wise advice.

You May Also Like