If a creditor expends the time and money required to sue you and obtain a court judgment, the creditor is likely to enforce the judgment on its own rather than lose money by hiring a collection agency to procure payment from you. If the creditor cannot collect, however, transferring the judgment to a third party reduces the amount of financial effort the creditor must expend in its efforts to recover the unpaid judgment.
Although it may appear that the original creditor sold your debt to a collection agency, if the original creditor already obtained a judgment against you, it's more likely that the collection agency is merely collecting the judgment for the original creditor in exchange for a portion of the proceeds. When a creditor hires a third party to recover debts, any contract that existed between the debtor and the original creditor also exists between the debtor and the collection agency – giving the collection agency the same judgment enforcement rights as the actual judgment holder.
Each collection agency employs different debt recovery policies. In general, however, debt collectors contact you by telephone and mail and request that you pay off the debt voluntarily before initiating collection by force. If you refuse, your creditor returns to court and obtains a judgment execution order that allows it to seize debt by force.
A collection agency with an execution order is a dangerous adversary. It can attach liens to your real estate and personal property, seize your bank account and force your employer to garnish your wages.
State laws govern how creditors and collectors can enforce their judgments, and state laws vary. Texas, for example, does not allow judgment creditors to garnish your wages, while New York places limitations on the amount a creditor can seize from your bank account when executing a bank levy.
If the creditor was unable to enforce its judgment against you, the collection agency is likely to encounter the same obstacles. When a creditor cannot enforce its judgment, the debtor in question is “judgment-proof.” Judgment-proof debtors do not own property against which a creditor can attach a lien, do not earn wages the creditor can garnish and do not have bank accounts or have bank accounts that contain only funds that are exempt from a levy – such as unemployment, a retirement pension or other state and federal benefits.
- Bills.com; Collection Agency Fees; December 2010
- Cardreport.com; Collection Agency FAQ; 2009
- Bankrate.com; Debt, Collection Agencies and Your Rights; Steve Bucci; August 2006
- Law Office of Carol Cross Stone; Wage Garnishment in Texas; 2009
- Neighborhood Economic Development Advocacy Project; What is Exempt From Wage Garnishment?; 2007