Do I Pay Debt Sold to a Collection Agency?

Once your original creditor sells your unpaid account balance to a collection agency, you no longer owe the debt to the original creditor, but to the company that purchased your account. Whether or not to pay a collection agency is a personal decision, but doing so carries its own set of advantages and disadvantages, depending on your circumstances.

The risk of a lawsuit is a factor you must consider when deciding whether to pay off a collection account. Although collection agencies threaten lawsuits much more frequently than they file them, each debt collector conducts business differently. Your lawsuit risk increases the more you owe. In general, however, consumers are most likely to face collection lawsuits for debts that exceed $1,000. Should a collection agency file a lawsuit against you for your unpaid debt, you could face wage and bank account garnishment in addition to liens against your real estate and personal property.

Contrary to popular belief, paying a collection agency neither erases the collection account from your credit report nor raises your credit score. When you pay off the debt, the company will, however, update your credit file to reflect that the debt was paid. Paid debts always look better to anyone reviewing your credit report than unpaid accounts. Collection accounts do not remain a part of your credit history indefinitely. Regardless of whether your financial circumstances permit you to pay off your debt or not, the Fair Credit Reporting Act requires that the credit bureaus remove collection accounts after seven years.

When pursuing debtors through the court system, every collection agency is bound by the statute of limitations for debt collection in the individual’s state of residence. Each state differs, but most states’ statutes of limitation fall somewhere between three and six years. After this time period, a debt collector cannot legally sue you for your debt. Making a partial payment on the debt resets the statute of limitations -- leaving you once again vulnerable to a lawsuit. Thus, if the statute of limitations in your state has already passed, paying in full is a less risky option than submitting a partial payment.

Although the Fair Debt Collection Practices Act provides you with the right to force a collection agency to stop contacting you by sending your request to the company in writing, this cease communication order does not apply to any other collection agencies that purchase your debt in the future. As your debt is sold or transferred from debt collector to debt collector, you will continue to receive telephone calls and letters concerning the unpaid balance. Paying the debt in full, however, stops any further collection activity. By paying off the account, you satisfy your obligation to the debt and prevent the collection process from proceeding any further -- preventing any future collection activity.