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Debt Assignment: How They Work, Considerations and Benefits

Daniel Liberto is a journalist with over 10 years of experience working with publications such as the Financial Times, The Independent, and Investors Chronicle.

Charlene Rhinehart is a CPA , CFE, chair of an Illinois CPA Society committee, and has a degree in accounting and finance from DePaul University.

Katrina Ávila Munichiello is an experienced editor, writer, fact-checker, and proofreader with more than fourteen years of experience working with print and online publications.

Investopedia / Ryan Oakley

What Is Debt Assignment?

The term debt assignment refers to a transfer of debt, and all the associated rights and obligations, from a creditor to a third party. The assignment is a legal transfer to the other party, who then becomes the owner of the debt . In most cases, a debt assignment is issued to a debt collector who then assumes responsibility to collect the debt.

Key Takeaways

• Debt assignment is a transfer of debt, and all the associated rights and obligations, from a creditor to a third party (often a debt collector).
• The company assigning the debt may do so to improve its liquidity and/or to reduce its risk exposure.
• The debtor must be notified when a debt is assigned so they know who to make payments to and where to send them.
• Third-party debt collectors are subject to the Fair Debt Collection Practices Act (FDCPA), a federal law overseen by the Federal Trade Commission (FTC).

How Debt Assignments Work

When a creditor lends an individual or business money, it does so with the confidence that the capital it lends out—as well as the interest payments charged for the privilege—is repaid in a timely fashion. The lender , or the extender of credit , will wait to recoup all the money owed according to the conditions and timeframe laid out in the contract.

In certain circumstances, the lender may decide it no longer wants to be responsible for servicing the loan and opt to sell the debt to a third party instead. Should that happen, a Notice of Assignment (NOA) is sent out to the debtor , the recipient of the loan, informing them that somebody else is now responsible for collecting any outstanding amount. This is referred to as a debt assignment.

The debtor must be notified when a debt is assigned to a third party so that they know who to make payments to and where to send them. If the debtor sends payments to the old creditor after the debt has been assigned, it is likely that the payments will not be accepted. This could cause the debtor to unintentionally default.

When a debtor receives such a notice, it's also generally a good idea for them to verify that the new creditor has recorded the correct total balance and monthly payment for the debt owed. In some cases, the new owner of the debt might even want to propose changes to the original terms of the loan. Should this path be pursued, the creditor is obligated to immediately notify the debtor and give them adequate time to respond.

The debtor still maintains the same legal rights and protections held with the original creditor after a debt assignment.

Special Considerations

Third-party debt collectors are subject to the Fair Debt Collection Practices Act (FDCPA). The FDCPA, a federal law overseen by the Federal Trade Commission (FTC), restricts the means and methods by which third-party debt collectors can contact debtors, the time of day they can make contact, and the number of times they are allowed to call debtors.

If the FDCPA is violated, a debtor may be able to file suit against the debt collection company and the individual debt collector for damages and attorney fees within one year. The terms of the FDCPA are available for review on the FTC's website .

Benefits of Debt Assignment

There are several reasons why a creditor may decide to assign its debt to someone else. This option is often exercised to improve liquidity  and/or to reduce risk exposure. A lender may be urgently in need of a quick injection of capital. Alternatively, it might have accumulated lots of high-risk loans and be wary that many of them could default . In cases like these, creditors may be willing to get rid of them swiftly for pennies on the dollar if it means improving their financial outlook and appeasing worried investors. At other times, the creditor may decide the debt is too old to waste its resources on collections, or selling or assigning it to a third party to pick up the collection activity. In these instances, a company would not assign their debt to a third party.

Criticism of Debt Assignment

The process of assigning debt has drawn a fair bit of criticism, especially over the past few decades. Debt buyers have been accused of engaging in all kinds of unethical practices to get paid, including issuing threats and regularly harassing debtors. In some cases, they have also been charged with chasing up debts that have already been settled.

Federal Trade Commission. " Fair Debt Collection Practices Act ." Accessed June 29, 2021.

Federal Trade Commission. " Debt Collection FAQs ." Accessed June 29, 2021.

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Assignment Of Debt: Definition & Sample

Jump to section, what is an assignment of debt.

Assignment of debt is an agreement that transfer debt, rights, and obligations from a creditor to a third party. Assignment of debt agreements are commonly found when a creditor issues past due debt to a debt collection agency. The original lender will be relieved of all obligations and the agency will become the new owner of the debt. Debt assignment allows creditors to improve liquidity by reducing their financial risk. If a creditor has taken on a large amount of unsecured debt, an assignment of debt agreement is a quick way to transfer some of the unsecured loans to another party.

Common Sections in Assignments Of Debt

Below is a list of common sections included in Assignments Of Debt. These sections are linked to the below sample agreement for you to explore.

Assignment Of Debt Sample

Reference : Security Exchange Commission - Edgar Database, EX-10 19 ex107.htm ASSIGNMENT OF DEBT AND SECURITY , Viewed October 25, 2021, View Source on SEC .

Who Helps With Assignments Of Debt?

Lawyers with backgrounds working on assignments of debt work with clients to help. Do you need help with an assignment of debt?

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Meet some of our Assignment Of Debt Lawyers

Experienced in house counsel with expertise in contracting, labor and employment, regulatory and compliance and healthcare

McGhee at Law is a purpose-driven law firm located in Indiana. We are focused on assisting Clients with creating opportunities of advancement. Our strategy is to assist, advise and support our Clients in fulfilling their vision for their personal lives and businesses through the practice of law.

Skilled/versatile attorney (and RE broker) with 10+ years' experience and diverse background in real estate, business law, injury litigation, estate planning. Select Experience: • Former General Counsel (and current Of Counsel) for a prominent real estate developer touching on all aspects of business in a hands-on and advisory role, including Lease and PSA contract negotiations; • Years of successful injury litigation practice as associate and solo (primarily plaintiff, some defense) with multiple six-figure settlements; • Years of expertise in business law for a variety of industries as well as estate planning for small to mid-size entities.

Have experience in contract, family law, municipality work, criminal defense, litigation, some wills and estates as well. Been practicing law for over 22 years.

I currently focus on estate planning, uncontested divorces, mobile real estate closings, and contract review for small businesses after starting my firm after leaving my position a partner at a national law firm specializing in creditor rights and real property.

I have been an attorney for 30 years. I am a Colorado native with many years in Alaska. I have a Bachelors in Biology, Chemistry and French, JD from Seattle University and Masters in Environmental Science and Law from Vermont Law School. I have traveled extensively, mostly in Europe, and speak several languages with more or less proficiency. I practiced law in Alaska and Colorado, much of it in remote areas but also large cities. I have taught in an environmental masters program and run large environmental nonprofits and a hot springs resort. I have worked with and run business incubators, a process I love. Empowering people to build their own futures is a passion.

Whitney L. Smith's journey from entrepreneur to advocate is fueled by a profound understanding of the business world. With a decade of firsthand entrepreneurial experience, she entered law school driven by a mission to protect others' businesses. However, her passion for real estate law blossomed as she recognized the tremendous benefits rental property ownership offers to individuals seeking passive income and community development. Blending her deep understanding of transactional law with zealous courtroom advocacy, she empowers landlords to thrive. Born and raised in St. Petersburg, Florida, she is a proud graduate of Stetson College of Law and cherishes her role as a devoted parent to two children and a beloved pit bull companion.

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Understanding Debt Collection Agencies: Role, Process, and Examples

A debt collection agency is a company that specializes in recovering unpaid debts from individuals or businesses on behalf of creditors. These agencies act as intermediaries between the creditor and the debtor, aiming to collect the outstanding amounts owed. They can work on various types of debt, including credit card debt, medical bills, personal loans, and utility bills.

Table of Contents

Key points about debt collection agencies.

• Intermediary Role : Acts as a middleman between the creditor and the debtor.
• Debt Recovery : Specializes in recovering unpaid debts.
• Types of Debt : Handles various types of debt, such as credit card debt, medical bills, and loans.
• Compensation : Usually paid a fee or a percentage of the recovered debt.

How Does a Debt Collection Agency Work?

Initial assignment.

When a debt remains unpaid for a certain period, the creditor (such as a bank or a service provider) may decide to hand over the debt to a collection agency. This process can happen in two ways:

• Outsourcing : The creditor hires a collection agency to collect the debt on their behalf.
• Selling Debt : The creditor sells the debt to a collection agency at a discounted rate, transferring ownership of the debt.

Example : If John owes $1,000 on a credit card and hasn’t made a payment in six months, the credit card company might hire a collection agency to recover the debt or sell the debt to the agency for a lower amount, say $700.

Contacting the Debtor

Once the debt is assigned, the collection agency will contact the debtor to request payment. This contact can be made through:

• Phone Calls : The agency calls the debtor to discuss the debt and payment options.
• Letters : Written communication is sent to the debtor detailing the amount owed and payment instructions.
• Emails : Electronic communication as an alternative to letters and calls.

Negotiating Payment

The collection agency may offer the debtor various payment options to settle the debt:

• Lump-Sum Payment : The debtor pays the entire amount owed in one payment.
• Payment Plan : The debtor agrees to pay the debt in installments over a specified period.
• Settlement : The agency may negotiate a reduced amount that the debtor can pay to settle the debt.

Example : If John owes $1,000, the collection agency might offer him a settlement of $800 to clear the debt if he can pay it in a lump sum.

Reporting to Credit Bureaus

Debt collection agencies typically report the status of the debt to credit bureaus. This can have significant implications for the debtor’s credit score:

• Negative Impact : An unpaid debt sent to collections can lower the debtor’s credit score.
• Resolution : Once the debt is paid, the collection account will be updated, which can gradually improve the credit score over time.

Benefits of Using a Debt Collection Agency

For creditors.

• Focus on Core Business : Allows creditors to focus on their main business activities rather than chasing unpaid debts.
• Professional Recovery : Utilizes the expertise of professionals trained in debt recovery.
• Higher Recovery Rates : Increases the likelihood of recovering outstanding debts.

For Debtors

• Payment Plans : Provides an opportunity to negotiate more manageable payment terms.
• Debt Settlement : Offers the possibility of settling the debt for less than the full amount owed.
• Resolution : Helps resolve outstanding debts that the debtor might be struggling to pay.

Real-World Example

Debt collection for medical bills.

Scenario : Mary has an outstanding medical bill of $5,000 that she hasn’t been able to pay due to financial difficulties.

Debt Collection Process :

• Assignment : The hospital assigns Mary’s debt to a collection agency.
• Contact : The agency contacts Mary via phone and letter to inform her about the debt.
• Negotiation : Mary negotiates a payment plan with the agency to pay off the debt in monthly installments of $200.
• Resolution : Mary follows the payment plan, and the agency updates the credit bureaus once the debt is fully paid.

Risks and Considerations

• Fees and Charges : Debtors should be aware that some collection agencies may charge additional fees.
• Aggressive Tactics : Some agencies may use aggressive tactics, which can be stressful for the debtor.
• Credit Impact : Debts sent to collections can negatively affect credit scores, impacting future borrowing ability.
• Legal Issues : Debtors should know their rights under laws such as the Fair Debt Collection Practices Act (FDCPA) in the US, which protects against abusive collection practices.

Mitigating Risks

• Understand Rights : Debtors should be familiar with their legal rights regarding debt collection.
• Communicate Clearly : Maintaining clear and open communication with the collection agency can help avoid misunderstandings.
• Seek Advice : Consulting a financial advisor or legal expert can provide guidance on handling debt collection.

Debt collection agencies play a crucial role in the financial ecosystem by helping creditors recover unpaid debts and offering debtors a pathway to manage and settle their obligations. While the process can have significant implications for all parties involved, understanding how debt collection works and being aware of the rights and options available can lead to better outcomes. Both creditors and debtors can benefit from the structured approach that collection agencies provide, ultimately contributing to financial stability and resolution of outstanding debts.

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Difference Between Assigning & Selling a Debt to a Collection Agency

by Jillian Peterson

Published on 1 Jan 2021

When a customer fails to pay a bill in a timely manner, small business owners have several options to attempt to collect. If the debt is not too old, it might be possible to file a civil lawsuit to obtain a judgement. If you lack the time needed to pursue collections, the amount of the debt is too small to make court costs worthwhile, or the statute of limitations has passed, you might consider hiring a collection agency to collect for you or selling your bad accounts to a debt buyer.

Assigning a Debt

Assigning a debt means handing the debt over to a collection agency to collect on your behalf. The benefit to assigning debt is that it the collection agency takes only a portion of the total amount owed if the debt is successfully collected. Assigning a debt to a collection agency is most effective when done early on, while the debt is still within the statute of limitations in the state in which your customer is located.

Selling a Debt

Selling a debt to a debt buying company is often a last resort, used when other collection attempts have failed or when the statute of limitations on the debt is approaching or has passed. Debt buyers pay pennies on the dollar to purchase the debt. What they offer is all your business will receive for the debt, and any amount the debt buying company collects is its profit.

Collection Agencies

Collection agencies work on a contingency basis, meaning they charge a percentage of the amount they collect from bad debtors on your behalf. In business to business collections, the amount is usually around 25 percent. Consumer debt collections might carry rates as high as 40 percent. First-party collection agencies collect as if they work for your collections department, using your company name and letterhead. Third-party collection agencies and collection attorneys will collect under the collection agency's name.

Statute of Limitations

Each state has a statute of limitations on debt that governs how much time you have to file a lawsuit to collect money owed. If a judgment is won against your debtor, you might be able to initiate garnishments to recover the debt. Once the statute of limitation passes, however, the debt is considered time-barred. You can still attempt to collect on a time-barred debt, but you cannot file a civil claim against your debtor. Because of this, many businesses find selling the debt after it becomes time-barred is the most profitable option.

Personal Finance

How to deal with debt collectors.

Our evaluations and opinions are not influenced by our advertising relationships, but we may earn a commission from our partners’ links. This content is created by TIME Stamped, under TIME’s direction and produced in accordance with TIME’s editorial guidelines and supervised by TIME’s editorial staff. Learn more about it .

When a debt goes unpaid, your creditor might assign or sell your account to a collection agency. It's a debt collector's job to try to get you to pay and they can be persistent in their efforts. Being bombarded by collection calls or receiving collection letters in the mail can be stressful. If you find yourself in this situation it's important to know what rights you have when dealing with a debt collector. 

How debt collectors get your information

Debt collectors can get your information in a variety of ways. How they go about it can depend on how they acquired your debt account. Again, creditors can assign past-due accounts to collection agencies or sell them outright. When that happens, the creditor will share your debt and contact details.

Some of the other ways debt collectors gather information include:

• Checking public records.
• Social media.
• Contacting people in your circle, including friends and family members.
• Checking phone directories or the post office.
• Reviewing voter registration records or DMV records.
• Contacting banks.
• Checking with the credit bureaus.
• Using a data aggregator.
• Skip tracing.
•  Internet searches.

Debt collectors can legally access any information that's part of the public record to find you. Once they have your phone number or address, collection efforts can begin. 

4 Ways to deal with debt collectors

Being contacted by a debt collector isn't a reason to panic. Knowing what to do when you receive a collection call or letter can make the process less stressful. 

1. Confirm who they are

Debt collection scams abound. If you get a collection call or letter, first make sure you're dealing with a legitimate company. A debt collector has to provide you with information about the debt they're trying to collect, including:

• A statement that the communication you're receiving is from a debt collector.
• Your name and address and the debt collector's name and address.
• The name of the original creditor you owe the debt to.
• Your account number.
• The amount owed, including interest and fees.
• Information you can use to reply to a collection notice.
• Notice telling you how long you have to dispute the debt.

Validation letters may be sent by regular mail or email. If a debt collector doesn't supply you with this information within five days of initially contacting you, that's a sign that they may not be a legitimate company. 

2. Stay calm

If it's your first time answering a debt collection call you might not know what to expect. It's not unheard of for debt collectors to use aggressive tactics to try and get you to make a payment or agree to pay over the phone. 

The best thing you can do is stay calm and remember that you have rights. Don't make any promises or guarantees to pay anything until you've had a chance to validate the debt and verify that it's yours. 

If a debt collector turns up the heat and threatens you with a lawsuit or says they'll send the sheriff to your house, politely tell them you'll have to call them back. If they become abusive you can ask them to contact you by written mail only going forward and hang up the phone. 

3. Verify their records against yours

If a debt collector provides you with a validation letter, check it against your records. Here are some good questions to ask. 

• Is the creditor's name the same?
• Is the account number correct?
• If payment history is provided, does it match your payment records?
• Does the balance they claim you owe line up with what you think you owe?
• Do you actually own the account? 

Debt collectors can and do make mistakes. If you have a common name, for example, it's possible that a debt collector could reach out to you about a debt they think you owe that belongs to someone else. 

Doublechecking their information against yours can help you spot errors and give you grounds to dispute the debt. When you dispute a debt, the debt collector can't contact you to collect until they verify that the account information is accurate. 

4. Decide how to respond

If you've validated the debt and confirmed that the debt collector is legit, the next step is deciding how to respond. Legally, you can:

• Dispute the debt if you don't think you owe it.
• Request that the debt collector contact you through your attorney only.
• Ask the debt collector to contact you only by mail.
• Request that they stop contacting you altogether.

If you plan to pay the debt, you could:

• Ask for a payment plan.
• Negotiate a settlement of the amount owed.

Regardless of how you choose to move forward, it's a good idea to keep a paper trail of your communications with a debt collector. You can limit contact to written mail or email only, which can give you something to refer back to if a debt collector challenges something you've said later. 

Understand your rights when dealing with debt collectors

Several laws protect consumers when dealing with debt collector laws. The most important include:

• The Fair Debt Collection Practices Act (FDCPA), which governs what debt collectors can and can't do.
• The Fair Credit Reporting Act (FCRA), which specifies how debts can be included in your credit reports .
• The Consumer Financial Protection Bureau's (CFPB) Debt Collection Rule, which clarifies how debt collectors can communicate with you and the information they're required to provide.

Under these laws, consumers have the right to ask for written verification of a debt. They can also dispute debts that they believe do not belong to them. 

You have the right to specify how a debt collector can contact you or ask them to stop contacting you altogether. This does not, however, relieve you of any responsibility to pay the debt. 

If you believe any of your rights have been violated you can file a complaint with the CFPB . You could even go as far as suing a debt collector if you believe they've used unfair, misleading, or deceptive practices to try to coerce, harass, or trick you into paying a debt or agreeing to pay. 

What not to do with debt collectors

If you're contacted by a debt collector, use caution. There are certain mistakes to avoid as they could cost you some of your rights and protections. 

Don't share sensitive information

A legitimate debt collector will do their research to ensure that a debt belongs to you before contacting you. If a debt collector asks for your Social Security number, date of birth, bank account number, or other personal details don't hand it over without first:

• Verifying that the company is legitimate.
• Validating the debt.

Scammers may pose as debt collectors to try and get you to hand over your information so they can use it to commit fraud. 

Don't acknowledge the debt without validation

The CFPB's Debt Collection Rule requires debt collectors to validate any debt they try to collect. Until you have this information in hand, don't acknowledge the debt or make any promises to pay. 

Don't make any good faith payments either, as that can restart the clock on the statute of limitations. The statute of limitations on debt specifies how long a creditor or debt collector has to sue you for an unpaid account. 

Each state has laws regarding how long a creditor has to sue. Making a payment or promising to pay resets the clock and gives a creditor more time to collect. 

Don't allow debt collectors to harass or bully you

Debt collection has its bad apples; some people will threaten you, use abusive language, or try to bully you into paying. 

You don't have to accept that kind of behavior and you can put a stop to it by asking the debt collector to only contact you by mail or not contact you at all. Cutting off contact doesn't make the debt go away but it does give you some relief from abusive tactics. 

Common reasons for consumer complaints against debt collection practices

The CFPB collects information on consumer complaints against debt collection agencies. According to the CFPB database, some of the most common complaints involve:

• Debt collectors attempting to collect debts that are not owed.
• Problems with debt collectors providing validation in a timely and complete manner.
• Debt collectors threatening to take legal action when they had no plans to do so.
• Collection agents making false statements or otherwise misrepresenting themselves.
• Problems with frequent and repeated phone calls or debt collectors using obscene, profane, or abusive language.
• Debt collectors calling before 8 a.m. or after 9 p.m., both of which are prohibited under federal debt collection laws.

If you'd like to read specific details about these complaints, the CFPB's database is open to public view. You can also search for complaints lodged against a specific debt collection agency.

How to spot a debt collection scam

Debt collection scams can target unsuspecting victims; it's to your advantage to be aware of what one might look like. Here are some of the biggest red flags that could indicate a debt collection scam: 

• A debt collector asks you for information they should already have. 
• The debt collector threatens you with legal charges or says they're going to send law enforcement to your home or place of work to arrest you. 
• They refuse to give you information about the debt that they're legally required to provide. 
• They refuse to share information about themselves, including their name, phone number, and mailing address. 
• The debt collector asks you for your bank account information or Social Security number. 

If you experience any of these situations you have the right to ask them to contact you again later. That can allow you time to verify that the debt collector is who they say they are.  If you find that they're not legitimate, you can report them to the CFPB. 

TIME Stamp: Know your rights when a debt collector calls

Debt collectors have the right to contact you if you owe a debt, but there are rules for what they can do. If you get a collection call or letter in the mail, don't panic. Review your debt collection rights, check your records, and be prepared to deal with a debt collector calmly and confidently. 

Frequently asked questions (FAQs)

How do you outsmart a debt collector.

When dealing with a debt collector the goal shouldn't be to outsmart them. Instead, you should be focused on preserving your rights. Knowing what a debt collector can and can't say, when they're allowed to contact you, what information they're required to provide, and what rights you have is the best way to handle the situation. 

What should you not say to debt collectors?

It's unwise to share sensitive financial or personal information with a debt collector without first verifying that they're legitimate. Making promises to pay or acknowledging the debt in any way can also be problematic as it can restart the statute of limitation on debt. That would allow your creditors more time to take collection actions against you. 

How do I get rid of debt collectors without paying?

If you have debts you don't want to pay, you can ask debt collectors to stop contacting you. That won't erase your obligation to the debt, however, and a debt collector could still sue you. Once the statute of limitations on debt expires you can't be sued—but the debt doesn't just disappear . According to the Consumer Financial Protection Bureau, you could still lose a lawsuit if you don’t appear in court and prove that the statute of limitations has expired.

How should I respond to a debt collector?

When dealing with a debt collector, respond calmly and ask for validation of the debt. If a debt collector threatens you or engages in abusive tactics you can ask that they no longer contact you or only contact you in writing. Communicating with a debt collector via letters or emails can help you document what's said and the dates the communication took place.

The information presented here is created by TIME Stamped and supervised by TIME editorial staff. To learn more, see our About page .

Debts Sold or Assigned to Collection Agencies

What happens if you list a creditor in your bankruptcy case but, unknown to you, it sold the debt to a collection agency that you don’t list?

Our blog post two weeks ago was about needing to list all your debts in a bankruptcy case in order to write them off. This is part of a series of blog posts about debts that may not get discharged (written off) in bankruptcy. The law says that bankruptcy does not discharge debts that are “neither listed nor scheduled” in the bankruptcy documents. Section 523(a)(3) of the Bankruptcy Code.

Special Scenarios

This raises some practical questions, including the following:

Is a debt covered if you don’t list it but the creditor still learns about your bankruptcy case?

What happens if you list the creditor but it had previously sold the debt to a collection agency?

What do you do if you don’t know all of your debts because you’ve moved or lost track of them for some other reason?

We addressed the first of these last week, and discuss the second one today.

Debts Listed but Sold to Collection Agency

So you list the creditor on your bankruptcy schedules but after filing learn it sold the debt to another entity. Let’s assume you know the name and address of the new creditor or collection agency.

Debts Sold Before Your Bankruptcy Filing

Let’s start with the situation that the debt was sold to the new entity before you filed the bankruptcy case. You only find out about it after your filing. You either receive a new notice about it or dig up an older one you hadn’t found earlier. What should you do?

There’s a decent chance that when the creditor you listed gets the bankruptcy notice it will forward it to the new owner of the debt. That would seem to be the sensible and business-like thing for it to do. Then the new owner would learn about your case even without being listed on your bankruptcy schedules. It would be covered by your bankruptcy case and the debt would likely get discharged. (See our last blog post about the creditor’s “actual knowledge” exception.)

Three Problems

There are three problems with this.

First, the listed creditor may simply not bother to pass on your bankruptcy notice to the new debt holder. The creditor no longer has any interest in the debt. It doesn’t owe you any favors. Why shouldn’t it just throw away the bankruptcy notice, and not inform the new debt holder? Then this new debt holder—the creditor you actually owe—may well never find out about your bankruptcy. You could easily continue owing the debt. It’s not safe to rely on the listed creditor to tell the new debt holder. It’s way too risky.

Second, even if the listed creditor does pass on the bankruptcy notice the new debt holder may not receive it. Or that debt holder may simply say it never received it. Good luck getting proof that it did. Collection agencies sometimes attempt to collect debts (purposely or inadvertently) that a bankruptcy has legally discharged. Without proof that the collection agency received notice of your bankruptcy filing you may still owe the debt. At the very least you’d have a much harder time getting them to stop trying to collect on the debt.

Third, even if the new debt holder does receive notice about your bankruptcy filing, it may not happen fast enough. You have no control when your listed creditor would get around to passing on information about your filing. There would be some delay between the time the creditor receives the bankruptcy notice and when it forwards it. In some situations the timing when the new debt holder receives the bankruptcy information is crucial. See our last blog post for a discussion about this timing issue.

Formally Adding Creditors to Your Schedules After Filing

So instead of relying on your listed creditor to inform the new debt holder it’s better to take the initiative.

First, you can formally add the new debt holder to your bankruptcy schedules, after your original filing. Your lawyer does this through an “amended schedule.” This is generally the safest option. Here’s one local bankruptcy court’s information about this procedure.

You do have to pay a modest additional filing fee (currently $31—see item #4 in the court fee schedule ). Plus your lawyer might charge you for the extra service (although not necessarily).

Another option may be to contact the debt holder—either yourself or your lawyer—without using an “amended schedule.” This contact may fulfil the requirements of the “actual knowledge” exception. What’s critical is to have appropriate evidence of this contact in case you need proof of it later. There may be timing considerations. Also, you may be required to use an “amended schedule” based on local bankruptcy rules.

Don’t decide this on your own. Talk with your bankruptcy lawyer for advice about resolving the situation the safest and most cost-effective way.

Debts Sold After Your Bankruptcy Filing

Creditors should not sell or assign your debt after they get notice of your bankruptcy case. At least they shouldn’t without informing the new debt holder about your bankruptcy case.

But sometimes they do sell the debt after getting notice about your bankruptcy case, whether intentionally or out of carelessness. Then the discussion above applies. If your bankruptcy case is still active, your lawyer should probably file an “amended schedule” adding the new debt holder.

The creditor’s sale or assignment of the debt can also occur between the time you file bankruptcy and the time the creditor receives notice of it. It may sell or assign the debt after you file bankruptcy but before it knows about your filing.

Again, the discussion above applies. You could hope that when this creditor gets notice of your bankruptcy filing it will inform the new debt owner. There’s a decent chance that it would do so, since the sale had just happened. Its file on you may still be open or would have just been closed a short time earlier. But again, your listed creditor may still not bother to inform the new debt holder. So, talk with your bankruptcy lawyer as soon as you find out about new debt holder. Remember that timing can be extremely important. In most situations filing an “amended schedule to add the new debt holder is the appropriate solution.

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Nexa Collections

When should you Assign an Account to a Collection Agency?

The best time to assign an account to a collection agency is when the debt is around 90 days past due .

Why 90 days?

• You have given your debtor at least three billing cycles to pay the bill and resolve any billing disputes that may have occurred.
• At 90 days, your efforts have been exhausted , and the account is clearly in the default territory. Your staff is spending more time and energy on reminding newer accounts that are around 30-60 days past due. 
• Paying your bill is clearly not a priority in your debtor’s mind by now. ( or your patient’s mind, in case of medical debts). Chances of recovering money are dropping every day. A collection agency typically recovers 75% of your money when the account is assigned at 90 days.
• Your internal staff is no match for a professional debt collector’s persistence and collection tactics . Your accounting department is unaware of collection laws that constantly change.
• You can write off collection costs as business expenses in your taxes .
• Quite likely your debtor likely has several other unpaid bills. A debt collector ensures that your bill becomes their top priority. You want to get paid before he wracks up more unpaid bills.
• Assigning an account at 90 days to a collection agency will likely not alienate the debtor . He understands that you have given them enough time already. 
• Your collection costs are lower:  You still have enough time to send Fixed-fee collection letters that cost a lot less than Contingency-based services. By spending about $15-$20 per account, you have an excellent chance to recover your money. Collection demands sent by a professional debt collector are a huge concern for your debtor versus when trying to collect by yourself. They will dig in all resources to get a collection agency off their back.

It is better to recover 75% of your money rather than take a 100% loss.

Need a cost-effective collection agency? Contact us

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Past Due Payments and Use of Collection Agencies

March 4, 2019  by  Oskar Rey Category:  Accounting ,  Utilities - Billing and Collection

Past due utility bills, traffic citations, code enforcement fines—these are just a few of the areas in which a municipality can be placed in the role of a debt collector. While local governments wear many hats, past due debt collection is typically not an area of municipal expertise. 

State law—in particular  RCW 19.16.500 —authorizes local government entities to use collection agencies to collect public debts. This article will provide an overview of the requirements for use of a collection agency and address some frequently asked questions that arise when doing so. 

Requirements for Use of Collection Agencies

Under RCW 19.16.500(1), state and local government entities may retain collection agencies “by written contract,” to collect “public debts owed by any person,” including restitution being collected on behalf of a crime victim. The government entity may add a reasonable fee to the debt for the collection agency fee to be incurred. The contract between the government entity and the collection agency should specify the fee amounts, and the statute provides the following guidance:

• A contingent fee of up to 50% of the first $100,000 of the unpaid debt per account and up to 35% of the unpaid debt over $100,000 per account is reasonable;
• A minimum fee of the full amount of the debt of up to $100 per account is reasonable; and
• Any fee agreement entered into by a governmental agency is presumptively reasonable (which places the burden on the debtor to establish that the agreement is unreasonable).

There are important requirements that a government entity must meet prior to assigning a debt to a collection agency. Under RCW 19.16.500(2) the government entity must:

• Attempt to advise the debtor of the existence of the debt and that the debt may be assigned to a collection agency for collection if the debt is not paid; and
• Wait at least 30 days from the time notice was attempted before assigning the debt to collection.

It is also a good practice for the government entity to advise the debtor that additional collection fees will become due upon assignment of the debt to collections. 

Frequently Asked Questions about Collection Agencies

What type of process is required under state law to contract with a collection agency?

Most types of local government entities are not required to use a specific contracting process for services, but check out our Find Your Contracting Requirements webpage to be sure. Even so, using a request for proposal (RFP) process can help identify the most qualified collection agency. We have examples of collection agency RFPs from the City of Olympia and the City of Kirkland on our website. Any contract should be authorized by the entity’s governing body or follow the entity’s contract approval procedures. 

Can a local government entity contract with a collection agency through MRSC Rosters?

Yes, there is a service category for collection agencies on MRSC Rosters . 

If a contingent fee of 50% on the first $100,000 of unpaid debt is reasonable under the statute, is there any reason to negotiate a lower fee with the collection agency?

Yes. Debts to municipalities vary widely by type and amount. While a 50% contingency fee may be appropriate for a $200 utility debt, it may be more than needed for other types of larger debts. Collection agency fees should be set at an amount that reasonably compensates the agency for its services. The RFP process is a helpful way to determine what fee amounts are appropriate in different debt-collection categories. 

If utility shut-off is an option, why would a municipal utility need to contract with a collection agency? 

Water shut-off is another option, but for cities, it only applies to charges that are four months (or fewer) past due. To the extent the debt is older than that, referring the debt to a collection agency remains an option. For more on that, see our Collection Practices for Delinquent Utility Accounts webpage. In addition, shut-off may not be available for other types of utilities, such as sewer and surface water.

Can a government entity assign the debt of another government entity to collections pursuant to RCW 19.16.500?

Probably not. RCW 19.16.500(1)(a) authorizes assignment of public debts “owed by any person.” Under RCW 19.16.100 (11), “person” includes individuals, partnerships, associations and corporations, but does not mention government entities. 

Questions? Comments?

If you have comments about this blog post, please comment below or email me at  [email protected] . If you have questions about this or other local government issues, please use our  Ask MRSC form  or call us at  (206) 625-1300  or  (800) 933-6772.

MRSC is a private nonprofit organization serving local governments in Washington State. Eligible government agencies in Washington State may use our free, one-on-one Ask MRSC service to get answers to legal, policy, or financial questions.

About Oskar Rey

Oskar Rey is a municipal attorney at Ogden Murphy Wallace where he represents local governments on a wide range of issues. He also teaches municipal law at Seattle University School of Law as adjunct faculty. Oskar was a legal consultant at MRSC from 2016 to 2024 and prior to that served as Assistant City Attorney at the City of Kirkland.

Oskar is writing as a guest author. The views expressed in guest columns represent the opinions of the author and do not necessarily reflect those of MRSC.

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Assignment Involves Transfer of Rights to Collect Outstanding Debts

Does the law allow a creditor to sell a debt to someone else, an assignment of debt occurs when a creditor, being a person owed money, transfers the right to collect the debt to another person who then becomes the creditor., understanding what constitutes as a legally binding assignment of creditor rights to collect a debt.

Right to Collect on Debts

Within the decision of Clark v. Werden , 2011 ONCA 619 the Court of Appeal confirmed the existence of the right to transfer debts as an assignment in accordance to the Conveyancing and Law of Property Act , R.S.O. 1990, c. C.34 , which prescribes the various requirements when a creditor transfers ownership of rights involving monies owed, among other things. Specifically, the Court of Appeal stated:

Clark v. Werden , 2011 ONCA 619 at paragraph 13

[13]   The ability to assign a debt or legal chose in action is codified in s. 53 of the  Conveyancing and Law of Property Act , which provides that a debt is assignable subject to the equities between the original debtor and creditor and reads as follows:

53 (1) Any absolute assignment made on or after the 31st day of December, 1897, by writing under the hand of the assignor, not purporting to be by way of charge only, of any debt or other legal chose in action of which express notice in writing has been given to the debtor, trustee or other person from whom the assignor would have been entitled to receive or claim such debt or chose in action is effectual in law, subject to all equities that would have been entitled to priority over the right of the assignee if this section had not been enacted, to pass and transfer the legal right to such debt or chose in action from the date of such notice, and all legal and other remedies for the same, and the power to give a good discharge for the same without the concurrence of the assignor.

Partially Assigned

It is notable that the statute makes mention of " absolute assignment " without clearly addressing the rights and method of treatment for a partial assignment of a debt.  In this circumstance, where more than one assignee may obtain or assume the rights of the creditor (or earlier assignee), a partial assignee is required to join all assignees when bringing legal action against the debtor.  This view was stated by the Court of Appeal in  DiGuilo v. Boland , 1958 CanLII 92 where it was said:

DiGuilo v. Boland , 1958 CanLII 92

The main reason why an assignee of a part of a debt is required to join all parties interested in the debt in an action to recover the part assigned to him is in my opinion because the Court cannot adjudicate completely and finally without having such parties before it.  The absence of such parties might result in the debtor being subjected to future actions in respect of the same debt, and moreover might result in conflicting decisions being arrived at concerning such debt.

Failed Notice

Of potentially grave concern to creditors, and potentially with great relief to debtors, for an assignee to retain the right to pursue the debtor, express written notice of the assignment is required.  This requirement was stated in 1124980 Ontario Inc. v. Liberty Mutual Insurance Company and Inco Ltd. , 2003 CanLII 45266  as part of the four part test to establish the right to pursue an assigned debt:

1124980 Ontario Inc.  v. Liberty Mutual , 2003 CanLII 45266 at paragraph 44

[44]   Accordingly, for there to be a valid legal assignment under  section 53(1) of the  CLPA , four requirements must be met:

a)  there must be debt or chose in action;

b)  the assignment must be absolute;

c)  the assignment must be written; and

d)  written notice of the assignment must be given to the debtor.

Where there is a failure of notice, and therefore failure to comply with the Conveyancing and Law of Property Act , it is said that the right to assign fails in law; however, relief in equity, via an equitable assignment may be available to an assignee affected by failure of notice.  Generally, in equity, when failure of notice occurs, the assignee is unable, in law, to bring an action in the name of the assignee and may do so only in the name of the creditor; however, even in the absence of proper notice as results in failure of assignment in law, and failure ot enjoin the creditor in an action pursued as an equitable assignment, the court may remain prepared to waive such a requirement whereas such occurred in the matter of  Landmark Vehicle Leasing Corporation v. Mister Twister Inc. , 2015 ONCA 545 wherein it was stated:

Landmark v. Mister Twister , 2015 ONCA 545 at paragraphs 10 to 16

[10]    Section 53(1) requires “ express notice in writing ” to the debtor.  Although there is some ambiguity in her reasons, it would appear that the trial judge found that Mr.  Blazys had express notice of the assignment, but not notice in writing.  Ross Wemp Leasing therefore did not assign the leases to Landmark in law: see  80 Mornelle Properties Inc.  v. Malla Properties Ltd. , 2010 ONCA 850 (CanLII) , 327 D.L.R.  (4th) 361, at para.  22 .  Ross Wemp Leasing did, however, assign the leases to Landmark in equity.  An equitable assignment does not require any notice, let alone written notice:  Bercovitz Estate v. Avigdor , [1961] O.J.  No.  20 (C.A.), at paras.  16, 25.

[11]   The appellants, relying on  DiGuilo v. Boland , 1958 CanLII 92 (ON CA), [1958] O.R.  384 (C.A.), aff’d, [1961] S.C.C.A.  vii, argue that as the appellants did not have written notice of the assignment, Landmark could not sue on its own.  Instead, Landmark had to join Ross Wemp Leasing in the action.  The appellants argue that the failure to join Ross Wemp Leasing requires that the judgment below be set aside.

[12]    DiGuilo does in fact require that the assignor of a chose in action be joined in the assignee’s claim against the debtor when the debtor has not received written notice of the assignment.  The holding in DiGuilo tracks rule 5.03(3) of the  Rules of Civil Procedure , R.R.O.  1990, Reg.  194 : In a proceeding by the assignee of a debt or other chose in action, the assignor shall be joined as a party unless,

(a) the assignment is absolute and not by way of charge only; and

(b) notice in writing has been given to the person liable in respect of the debt or chose in action that it has been assigned to the assignee.  [Emphasis added.]

[13]   Yet the assignee’s failure to join the assignor does not affect the validity of the assignment or necessarily vitiate a judgment obtained by the assignee against the debtor.  Rule 5.03(6) reads:

The court may by order relieve against the requirement of joinder under this rule.

[14]   The joinder requirement is intended to guard the debtor against a possible second action by the assignor and to permit the debtor to pursue any remedies it may have against the assignor without initiating another action:  DiGuilo , at p.  395.  Where the assignee’s failure to join the assignor does not prejudice the debtor, the court may grant the relief in rule 5.03(6) : see  Gentra Canada Investments Inc.  v. Lipson , 2011 ONCA 331 (CanLII), 106 O.R.  (3d) 261, at paras.  59 - 65 , leave to appeal refused, [2011] S.C.C.A.  No.  327.

[15]   In this case, the trial judge found that Mr.  Blazys, and effectively all of the appellants, gained actual notice of the lease assignments very shortly after the assignments were made and well before Landmark sued.  Armed with actual, albeit not written, notice of the assignment, the appellants could fully protect themselves against any prejudice from Landmark’s failure to join Ross Wemp Leasing.  Had the appellants seen any advantage in joining Ross Wemp Leasing, either to defend against Landmark’s claim or to advance a claim against Ross Wemp Leasing, the appellants could have moved for joinder under rule 5.03(4).  The appellants’ failure to bring a motion to add Ross Wemp Leasing speaks loudly to the absence of any prejudice caused by Landmark’s failure to join the assignor.

[16]   Ross Wemp Leasing perhaps should have been a party to the proceeding.  Landmark’s failure to join Ross Wemp Leasing, however, did not prejudice the appellants and should have had no impact on the trial judgment.  If requested, this court will make a  nunc pro tunc order relieving Landmark from the requirement of joining Ross Wemp Leasing in the action.

Summary Comment

The rights to collect on a debt can be sold and transferred from the original creditor to a substitute creditor or assignee who then takes on the rights of the original creditor.  Indeed, the selling and buying of individual debts, or debts within an entire portfolio debts is common within business.  The entire collection services industry is based on the concept of buying outstanding debt and then standing in the shoes of the original creditor and pursuing the payment of the debt.  Other forms of buying and selling debt includes mortgage swaps, among other things.

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• Managing Your Debt

Debt Validation Requirements for Collectors

Know your rights when collection agencies call

• Why Request Validation?

Debt Validation Is Time-Sensitive

Submitting a validation request.

• The Collector's Response

If the Collector Verifies the Debt

Settling your debt, frequently asked questions (faqs).

The Balance / Theresa Chiechi

Has a debt collector ever contacted you about a debt that you weren’t sure was yours? Or maybe you weren't sure the collector had the right to collect the debt? Any time a collector attempts to collect a debt, you have the right to ask them to send proof of that debt, the amount they claim you owe, and their legal ability to collect the debt from you.

The Fair Debt Collection Practices Act (FDCPA), a federal law regulating third-party debt collectors, allows you to request the debt collector to send proof of the debt through a process called debt validation.  

Why You Should Request Validation Before You Pay

You might want to just pay the collection and get it over with, particularly if you know the debt is yours and you need to pay it off to have a loan application approved. However, there are some strong reasons to exercise your right to request validation of the debt.

• Verify the debt is yours : Debt collectors have been known to send bills or make calls for bogus debts , so don't assume that a bill from a debt collector automatically means you owe. The letter may look legitimate, but in this digital age, it's easy to gather enough information about a person and their financial dealings to create a fake debt collection notice.  
• Confirm you haven't already paid : What if you already paid the debt? You may vaguely remember owing the creditor named on the collection notice or you may recall paying that debt at some point. To be certain, ask for proof. It's your right.  
• Force the debt collector to prove the debt is real : Sometimes debt collectors resurrect old debts in an attempt to make some money. With old debts, there's a good chance the collector doesn't have the original documents proving that you even owe. Would you really pay money to someone who says you owe them, but can't prove it? Of course not.
• Make sure the collector is authorized to collect the debt : Even if you really owe the money, how do you know the creditor actually hired this company to collect the debt on their behalf? What if you paid the collector, only to have the creditor or another collector come after you because the collector you paid was never hired in the first place? Sending a debt validation letter would help you be sure you're paying the right company for the right debt.

Within five days of its first communication to you, the debt collector is required to send a written debt validation notice to you. This notice will state ​your right to dispute the validity of the debt within 30 days. The FDCPA allows the collector to include the debt validation notice in the initial communication if that communication is a letter. When the debt collector’s first communication with you is a phone call, you should receive a debt validation letter from them within five days.

If you don’t dispute the debt in writing within 30 days, the debt collector has the right to assume the debt is valid. During the 30-day period, the collector can continue attempts to collect the debt from you until they receive your validation request.

To be legally valid, your request for proof must be made in writing. A verbal phone request for debt validation is not enough to protect your rights under the FDCPA. In your validation letter , you can dispute the entire debt, part of the debt, or request the name of the original creditor. Once the debt collector receives your validation request, they cannot contact you again until they've provided you with the proof you've asked for.  

The best way to send your debt validation request is via certified mail with return receipt requested. This way, you have proof that the letter was mailed, the date you mailed it, and verification of when the debt collector received your letter. If you have to file a lawsuit against the debt collector, the certified and return receipts will help strengthen your case.    

The certified mail receipt shows that you mailed the letter within the 30-day time frame and that the collector received it.

The Collector's Response

After receiving your dispute, the collection agency must send you proof that it owns or has been assigned the debt by the original creditor. Verification that you owe the debt and the amount of the debt needs to include documentation from the original creditor (you'll receive the proof from the debt collector, not the original creditor). You can also specifically request the name and address of the creditor for your own follow-up.  

If the debt collector does not send sufficient proof of the debt, they are not allowed to continue pursuing you for the debt. That includes listing the debt on your credit report—you can dispute the debt that hasn't been adequately validated with the credit bureaus. Send the credit bureau a copy of your debt validation letter along with the certified and return receipts to help get the account removed from your credit report .  

Always send copies of your proof and keep the originals for yourself. You can make additional copies if you need to dispute again in the future.

If you receive sufficient validation of the debt, you have to decide what to do next. Confirm the debt is within the statute of limitations —that's the amount of time a creditor or collector can use the courts to collect a debt from you. A debt that's outside the statute of limitations poses less of a threat to you since the collector can't win a judgment against you in court (as long as you can prove the statute of limitations has passed).

Check to see whether the debt is still within the credit reporting time limit, too. Most negative information—like a debt collection—can only be listed on your credit report seven years from the date of the delinquency. If the date of your delinquency is more than seven years ago, the debt should not appear on your credit report and, in that case, it won't hurt your credit to continue not paying the debt.

If the debt is old and scheduled to be removed from your credit report in less than two years, you may decide to simply let it fall off your credit report, especially if you're not planning to get a major loan in that time period.

What if the debt collection has been verified and is within the statute of limitations or the credit reporting time limit? You can try to settle with the collector for a percentage of the amount owed or offer a pay for delete agreement if the account is listed on your credit report. You'll have to be in a position to pay the account off quickly for this to work, however.

Paying in full is also an option—one you might choose if you plan to apply for a major loan before the debt drops off your credit report.

Ignoring the debt can have negative consequences, including damage to your credit, continuous debt collection attempts, and possibly even a lawsuit.

How long does a debt collector have to respond to your debt validation request?

There isn't a set time limit that determines when a debt collector has to respond to your validation request. However, they will not be able to try to collect the debt until they validate it, so debt collectors are likely to respond quickly if the debt is legitimate.

How do you write the letter to request debt validation?

The Consumer Financial Protection Bureau has a sample letter for this and several other situations you may encounter with a debt collector. In general, you want to provide and ask for as much detail as you can. Explain exactly when you were first contacted and what you were told. Ask for details about the debt including names and addresses on the account, a copy of the last billing statement from the original creditor, when the debt became due, and when it became delinquent.

U.S. Federal Trade Commission. " Fair Debt Collection Practices Act ."

Consumer Financial Protection Bureau. " How to Tell the Difference Between a Legitimate Debt Collector and Scammers ."

Consumer Financial Protection Bureau. " A Debt Collector Contacted Me About a Debt I Already Paid. What Should I Do? "

Consumer Financial Protection Bureau. " What Information Does a Debt Collector Have to Give Me About the Debt? "

State of California Department of Justice. " Debt Collectors ."

FTC Consumer Information. " Debt Collection FAQs ."

Experian. " How Long Does It Take for Information to Come Off Your Credit Reports? "

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Working with third-party debt collectors can be confusing and scary. For the more than 68 million U.S. adults with debt in collections, knowing their legal rights is crucial.

The Fair Debt Collection Practices Act covers third-party debt collectors — those who buy a delinquent debt from an original creditor, like a credit card company. An update to the rules on how the act is applied that went into effect in late 2021 alters the terms of engagement.

Some changes modernize the law and clarify how it is enacted. But consumer advocates say other revisions don’t go far enough or may have unintended consequences.

Know your rights

The FDCPA offers several protections , including:

Limits on debt collector actions

Collectors must be truthful, including about details of the debt. They cannot use abusive language, call repeatedly in a harassing manner or threaten violence.

Collectors can’t ask for a post-dated check for the purpose of threatening or instituting criminal prosecution. They also cannot collect more than the amount owed or threaten to take property when that’s not allowed.

Information disclosures

Debt collectors must send consumers a “debt validation letter” outlining important details, including the amount owed, the collection agency’s name and how consumers can dispute the debt.

Consumer rights

People can limit how and when a collector contacts them, including telling them to stop communicating altogether. In all but limited circumstances, the collector must honor that request.

If consumers doubt the details of a debt, they can send the collector a debt verification letter seeking more information beyond the validation letter.

Updates to the FDCPA rules

Here are some of the changes, which went into effect in late 2021:

New communication options

Debt collectors are able to contact consumers by email, text message and social media messages without prior consent from the consumer to use these channels. The messages must explain how the consumer can restrict contact by these methods or request no communication.

The CFPB also limits how debt collectors can use these channels. A debt collector cannot communicate with a consumer through social media if other consumers can see the message, such as a public comment on an Instagram post. Collectors also must disclose to a consumer that they are a debt collector before sending a friend request. And the FDCPA's limits on communication with a consumer at inconvenient times or places is also extended to electronic channels like social media.

Consumer advocates worry that collectors may send crucial information like the debt validation letter to email or social media accounts that aren’t in use.

“What consumers should know is it’s going to be really important for them to be proactive to opt out if they don't want to receive communications through text message or email,” says April Kuehnhoff, staff attorney at the National Consumer Law Center.

She also notes, “If consumers start getting communications from a debt collector and you haven't gotten the initial notice about the debt, they should ask for that information.”

New limits on collectors' actions and disclosures

In late 2021, new rules from the CFPB around how debt collectors can disclose information about a debt and when they can mark a debt on a consumer's credit report went into effect. There are also new limits on actions around "time-barred debt," which is debt past the statute of limitations for suing over the debt.

Specifically, when making first contact about a debt, collectors must provide detailed disclosures about the debt, the consumer's rights around collection and how they can respond to the collector. This information must be given before the collector reports a consumer's debt to a credit reporting agency.

For debt past the statute of limitations, the CFPB clarifies that collectors are prohibited from suing or threatening to sue consumers for payment on the debt. That said, debt collectors can still ask consumers for payment on the expired debt, a sketchy practice that can result in a consumer inadvertently reviving a so-called " zombie debt " and making themselves vulnerable to a lawsuit.

Why consumer advocates are concerned, and what you can do

Some advocates worry that the updates don’t go far enough and say some of the changes could actually lessen consumer protections. Here are two of the primary concerns:

Frequency of communication

The update clarifies the definition of a “harassing” frequency of phone calls from collectors — but this also might enable such harassment, advocates warn.

The new rule limits collectors to calling no more than seven times a week per account. It bars calls within seven days after having a conversation with a consumer. But consumers may have multiple accounts in collections, leading to a barrage of calls.

The one contact per day doesn’t cover text, email or social media channels, so consumers may be inundated with messages. The new rules also allow for “limited-content messages,” which could mean a proliferation of voicemails that don’t count as “communications.”

“We have concerns about what this is going to mean especially for consumers who might, for example, have multiple medical debts in collections,” Kuehnhoff says.

What you can do: If you feel you’re being contacted too frequently, you can demand the collector cease communication in all but a few instances, such as when legal action is threatened. This extends to prohibiting communication in different channels.

No coverage of original creditors

The kicker with the FDCPA is that it only regulates third-party debt collectors — that is, a collector who doesn’t represent the original creditor. A collector who works directly for an original creditor isn’t held to these standards.

What you can do: Work to quickly resolve an account when contacted by a debt collector — no matter whom they represent. You may be able to work out a payment plan or settle for less than originally owed.

Rights violated? Submit a complaint

If your rights have been violated by a debt collector, file a complaint with the FTC .

Dan Dwyer, staff attorney at the Federal Trade Commission, says consumers should provide as much identifying information about the collector as possible.

“Then, just tell us what the problem is as clearly as you can,” he says.

This article was written by NerdWallet and was originally published by The Associated Press.

Dive even deeper in Personal Finance

Pay Off Debt: Tools and Tips

How to deal with debt collectors in 3 steps, 5 ways the fair debt collection practices act protects you.

• Kreyòl Ayisyen

How to respond when a debt collector contacts you in three easy steps

Receiving a call from a debt collector can be stressful. Your first instinct may be to hide or ignore the situation and hope it goes away. But that can make things worse. We have resources to help you respond to debt collectors.

1. First, know your rights

There are laws that restrict what debt collection can say or do. The Fair Debt Collection Practices Act (FDCPA) prohibits debt collection companies from using abusive, unfair, or deceptive practices to collect debts from you. Under this law, a debt collector cannot:

You have rights

Most debt collectors follow the law when contacting you, but some do not. If you have a problem with debt collection, you can take action.

• Submit a complaint
• Call repeatedly to harass you
• Abuse or mistreat you
• Contact you at a time or place they know or should know is inconvenient, including before 8 a.m. or after 9 p.m. unless they know otherwise
• Use obscene language
• Make a false or misleading statement about what you owe
• Publish your name for not paying the debt
• Threaten to have you arrested for not paying the debt

You should know that even if a debt collector violates the law, the debt does not go away. You do have the right to sue, and if you win, the judge can require the debt collector to pay you damages. The court can also order the debt collector to pay your attorney fees if it is determined that they did violate the law.

2. Make sure the debt is yours 

When a debt collector calls, ask questions to find out if the debt and the debt collector are legit. You should find out:

What information does a debt collector have to give me about the debt?

A debt collector must tell you the name of the creditor, the amount owed, and ensure you can dispute the debt or find out if it is legit.

• Who you’re talking to (get the person’s name)
• The name of the debt collection company they work for
• The company’s address and phone number
• The name of the original creditor
• The amount owed
• How you can dispute the debt or ensure that the debt is yours

Take notes and document everything. We have sample letters and other resources that can help you request additional information from a debt collector.

3. Act quickly

Depending on your situation, there may be several different actions that you can take when you are contacted about a debt. 

If the debt is several years old , be sure to find out what your state’s statute of limitations is for a debt collector filing a lawsuit to collect the debt from you before making a payment. You may want to consult an attorney or the applicable law in your state.

If you’re not sure that the debt is yours , write the debt collector and dispute the debt or ask for more information.

If you find out that the debt does not belong to you, don’t delay! Write the debt collector and tell them that the debt is not yours and that you do not want to be contacted about the debt again in the future 

If the debt is yours , don’t worry. Decide on the total amount you are willing to pay to settle the entire debt and negotiate with the debt collector for the rest to be forgiven. This could be a lump sum or a payment plan. Be honest with yourself about how much you can pay each month.

Remember, responding to a debt collector doesn’t have to be scary. We have resources that can help . 

Join the conversation. Follow CFPB on X (formerly Twitter) and Facebook .

Debt Collection – Know Your Rights

You Have the Right:

• To stop contact. Debt collectors are prohibited from contacting you if you request, in writing, for them not to do so.
• To be free from harassment. The Federal Fair Debt Collection Practices Act requires that you be treated fairly without harassment. Visit dfpi.ca.gov/get-help to connect to resources related to this legislation.
• To ask for proof of the debt, such as a copy of a bill.
• To dispute any of the debt you are told you owe within 30 days of initial contact by a debt collector.
• To be free from false or misleading representations. Debt collectors are also prohibited from falsely representing the amount or character of the debt.
• To be free from debt collection activities for an identity theft-related debt.
• To submit a complaint to government agencies.

It Is Illegal for a Debt Collector To:

• Call you before 8 a.m. and after 9 p.m. without your authorization.
• Call over and over to annoy, abuse, or harass you or any person answering the phone.
• Post public messages on your social media accounts about your debt.
• Use obscene or profane language.
• Make threats of violence or harm.
• Lie about the amount you owe.
• Deceive you to collect money, for example by falsely claiming to be law enforcement officers or saying you’ll be arrested if you don’t pay your debt.
• Publish lists of people who refuse to pay their debts.
• Talk to you without telling you they are a debt collector, or using a fake company name.
• Bring a lawsuit or collect a debt unless they can verify the ownership and amount of the debt. The law also ends lawsuits on uncollected debts that are barred by an applicable statute of limitations.

What You Can Do

If a debt collector violates any of your rights, you may file a complaint with the DFPI , the California Attorney General’s Office (CA AG) , the Consumer Financial Protection Bureau (CFPB) , and/or the Federal Trade Commission (FTC)

Additional Resources

• Consumer Financial Protection Bureau (CFPB) Debt Collections information and guidance, as well as information on consumer protections.
• Federal Trade Commission (FTC) Information about your rights, and a helpful debt collection FAQ.
• Federal Deposit Insurance Corporation (FDIC) Tips and assistance for dealing with debt collectors.

California Laws Related to Debt Collection

• Debt Collection Licensing Act Senate Bill 908 (Wieckowski, Chap 163. Stats. 2021)
• California Consumer Financial Protection Law Assembly Bill 1864 (Limón, Chap 157, Stats. 2020)
• Learn more about the protections that the law provides for California consumers .

Key Consumer Links

• Consumer Resources
• Consumer Insights
• Consumer Alerts
• Consumer Connection Newsletter
• Licensees and Industries Regulated by the DFPI
• Actions, Orders and Administrative Hearing Decisions
• Submit a complaint
• Submit a Public Records Request

Help us improve the DFPI website!

• Share your feedback

News & Info Links

• Press Releases
• Monthly Bulletins
• Important Notices

Information

Help us improve the DFPI website! Share your feedback .

Last updated: Mar 6, 2024 @ 12:01 pm

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Family-run debt collection scam targeting veterans, service members shut down

Service members use a leg compression machine after completing part of a fitness challenge in Columbia, S.C., on May 26, 2022. Similar devices were fraudulently billed to veterans in a recent medical debt scam in Oklahoma. (Alexandra Shea/U.S. Army)

Three Oklahoma men who ran a collection agency that fraudulently demanded hefty payments from military personnel, veterans and seniors are permanently banned from further billing operations.

A federal court in Tulsa on Friday issued a permanent injunction against Christopher Parks, 63; his son, Christopher Noah Parks, 31; and his nephew, Stephen Miller, 39. Their company, Assured Collections, which was renamed Assured Financial, also is bound by the order.

The men scammed victims out of an unspecified amount by harassing them into paying medical debts that often didn’t exist, the Justice Department said in a statement Tuesday.

One victim, a Medicare and Tricare insurance beneficiary from South Carolina, was sent a collection notice in 2023 demanding $5,995 for a surgery performed in 2020. Assured was not authorized to collect any payment from that person, prosecutors said.

The elder Christopher Parks, who is serving an 18-month sentence stemming from a health care kickback scheme, directed the collection scam by phone from prison, according to the Justice Department.

Misappropriating medical billing data that Parks had obtained in his previous business dealings, his son and nephew sent out thousands of deceptive debt collection letters, prosecutors said. Many letters demanded sums in the thousands of dollars, the DOJ said.

This fraud led to significant financial losses for many victims, who paid out of fear of legal repercussions, according to authorities.

“The defendants in this case victimized individuals who were already traumatized by illness and were struggling emotionally, physically and financially,” Clint Johnson, U.S. attorney for the northern district of Oklahoma, said in 2023 after a preliminary injunction against the group.

After hundreds of consumer complaints against Assured Collections, Parks told Miller to change the company name to Assured Financial, prosecutors said in the criminal complaint.

This switch was part of a broader strategy to evade accountability and continue exploiting consumers, according to court documents.

While a civil consent decree, such as the one issued by the court in this case, does not always equate to an admission of guilt, it often indicates that defendants agreed to the terms to avoid further litigation.

This can establish a legal precedent that might be used against them in additional civil and criminal cases. The elder Christopher Parks is already awaiting trial in Texas on fraud charges related to the billing practices of another company he operated, USA Medical, the Justice Department said.

His involvement in the debt collection scheme could lead to harsher penalties if he’s convicted. His son and nephew are vulnerable to further legal action by other plaintiffs.

previous coverage

• AI-generated voices in robocalls can deceive voters; the FCC just made them illegal

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• Personal Loans
• Best Debt Consolidation Loans For Bad Credit

Best Debt Consolidation Loans For Bad Credit Of August 2024

Updated: Aug 1, 2024, 1:11pm

A debt consolidation loan can be a smart way to streamline your monthly debt obligations and get out of debt faster. However, if you have bad credit, qualifying for a debt consolidation loan with an attractive interest rate could be a challenge.

If you have bad credit and high-interest debts you want to pay off, it’s worth considering your options. Bad credit consolidation loans might work well for certain debts, especially those with sky high interest rates like payday loans or title loans. Find our list of the best options below.

Why you can trust Forbes Advisor

Our editors are committed to bringing you unbiased ratings and information. Our editorial content is not influenced by advertisers. We use data-driven methodologies to evaluate financial products and companies, so all are measured equally. You can read more about our editorial guidelines and the loans methodology for the ratings below.

• 29 nationwide lenders researched
• 16 data points evaluated and scored
• Line-by-line fact checking
• Best Personal Loans
• Best Debt Consolidation Loans
• Best Personal Loans for Fair Credit
• Easiest Personal Loans to Get
• Emergency Loans

Best Debt Consolidation Loans for Bad Credit of 2024

Universal credit, lendingclub, summary: best debt consolidation loans for bad credit of august 2024, tips for comparing bad credit debt consolidation loans, the complete guide to bad credit debt consolidation loans, what is a debt consolidation loan, how does debt consolidation work, pros and cons of debt consolidation, where to get a debt consolidation loan with bad credit, how to qualify for a debt consolidation loan with bad credit, how to get a debt consolidation loan with bad credit, 3 alternatives to debt consolidation loans for bad credit, methodology, frequently asked questions (faqs), compare personal loan rates.

• Upgrade – Best Overall Bad Credit Debt Consolidation Loan
• Universal Credit – Best for Comparing Multiple Offers
• Achieve – Best for Paying Off Credit Card Debt
• LendingClub – Best for Peer-To-Peer Lending

BEST OVERALL BAD CREDIT DEBT CONSOLIDATION LOAN

Minimum Credit Score

8.49% to 35.99%

Loan amounts

$1,000 to $50,000

Upgrade was launched in 2017 and provides accessible online and mobile credit and banking services. Since that time, the platform has made more than $3 billion in credit available to over 10 million applicants and continues to expand its online and mobile services. Although maximum APRs are on the high end compared to other online lenders, Upgrade makes loans available to those with poor credit history.

Loans amounts, which range from $1,000 to $50,000. Upgrade has two- to seven-year terms available. Upgrade charges an origination fee between 1.85% and 9.99% of the loan, and borrowers will encounter a $10 fee if their payment is more than 15 days late or if the payment does not go through; there are no discounts for autopay. That said, Upgrade borrowers are not subject to a prepayment penalty, so you can reduce the overall cost of the loan if you’re able to pay it off early.

Beyond offering accessible personal loans, Upgrade streamlines the lending process with a mobile app that lets borrowers view their balance, make payments and update personal information. Upgrade’s Credit Heath tool also makes it easy to track your credit score over the life of your loan.

• Low minimum credit score requirement
• Borrowers can use loans to cover business expenses
• Offers direct lender payoff for debt consolidation loans
• High APR range
• Charges fees for origination, late payment and insufficient funds

Overview: Upgrade was launched in 2017 and provides accessible online and mobile credit and banking services. Since that time, the platform has made more than $3 billion in credit available to over 10 million applicants and continues to expand its online and mobile services.

Upgrade charges an origination fee between 1.85% and 9.99% of the loan, and borrowers will encounter a $10 fee if their payment is more than 15 days late or if the payment does not go through; there are no discounts for autopay. That said, Upgrade borrowers are not subject to a prepayment penalty, so you can reduce the overall cost of the loan if you’re able to pay it off early.

Eligibility: 

• Minimum credit score: 580
• No minimum income requirement
• Allows co-applicants
• Debt consolidation
• Home projects
• Large expenses
• Business expenses

BEST FOR COMPARING MULTIPLE OFFERS

11.69% to 35.99%

Universal Credit is an online lending platform that offers personal loans between $1,000 to $50,000 through its partners. Repayment terms range from three to seven years.

While Universal Credit makes finding a personal loan accessible even to those with damaged credit, it comes with a few tradeoffs. First, it charges high APRs, well above the most competitive rates seen on our list. Second, Universal Credit charges a 5.25% to 9.99% origination fee on all personal loans. Because this is deducted from your loan proceeds, you’ll need to factor this in when determining your loan amount to ensure you receive the necessary amount after the fact.

• Flexible qualification requirements
• Next-day funding
• No prepayment penalty
• All personal loans charge a 5.25% to 9.99% origination fee

Overview: Universal Credit is an online lender powered by Upgrade with loans originated by partners Cross River Bank and Blue Ridge Bank. The lender offers its loans in every state except Iowa, West Virginia and Washington, D.C.

Eligibility:

• Minimum income requirement: Does not disclose
• Doesn’t allow co-signers or co-borrowers
• Large expense
• Home project

Best for Paying Off Credit Card Debt

Minimum credit score

8.99% to 35.99%

$7,500 to $40,000

Achieve is an indirect lending platform that offers personal loans underwritten by Cross River Bank or MetaBank. Founded in 2014, the lender is one of our top picks for debt consolidation loans because of the flexible loan terms (two to five years) and loan amounts ($7,500 to $40,000). These characteristics make it easier to consolidate a large amount of debt while spreading payments out over a lengthy period of time and reducing monthly payments.

Like some of our other top picks, Achieve also offers direct payment to creditors. In fact, borrowers who put 85% of the total loan amount toward debt consolidation via direct payment are more likely to qualify for a loan.

That said, depending on the interest rates on your current debts, the potentially high APR Achieve charges may make it more difficult to save money by consolidating. Likewise, the origination fee from 1.99% to 6.99% of the loan amount can make the loan more expensive. If you’re considering Achieve for debt consolidation, it’s important to do the math before you sign on the dotted line.

• Funds available within 48 hours
• Flexible repayment terms
• Allows co-borrowers
• Application is not entirely online
• Imposes a minimum income requirement
• High minimum loan amount

Overview:  Achieve is an indirect lending platform that offers personal loans underwritten by Cross River Bank or MetaBank. Like some of our other top picks, Achieve also offers direct payment to creditors. In fact, borrowers who put 85% of the total loan amount toward debt consolidation via direct payment are more likely to qualify for a loan.

• Minimum credit score: 620
• Minimum annual income: $21,500
• Allows co-signers and co-applicants

Loan uses: 

• Medical expenses
• Travel costs

Best for Peer-to-peer Lending

9.57% to 35.99%

$1,000 to $40,000

LendingClub is a peer-to-peer—or marketplace—lender founded in 2007. As the largest online lending platform for personal loans, LendingClub has worked with over 3 million customers and funded more than $55 billion in loans. It’s also one of the most geographically widespread options, with lending capabilities in every state except Iowa and the U.S. territories.

While LendingClub imposes high APRs and no autopay discount, applicants can choose to borrow between $1,000 to $40,000. This is a higher maximum loan cap than some other lenders. That said, LendingClub’s loan terms are limited to two to five years, which is less flexible than other lenders on our list. Borrowers also are charged an origination fee between 2% and 6% of the total loan amount, which is taken from the loan proceeds at funding.

LendingClub also makes debt consolidation easier by offering a balance transfer loan. With this type of loan, LendingClub offers direct payment to third-party lenders, including over 1,700 creditors. Not only does the platform take care of payments for you, you can choose exactly how much of your new loan amount you want LendingClub to pay toward each creditor.

• Will directly pay off third-party creditors as part of balance transfer loan
• Co-applicants permitted
• Available to borrowers with fair to excellent credit
• Origination and late fees
• Limited loan term availability

Overview: LendingClub is a peer-to-peer—or marketplace—lender founded in 2007. As the largest online lending platform for personal loans, LendingClub has worked with over 3 million customers and funded more than $55 billion in loans. It’s also one of the most geographically widespread options, with lending capabilities in every state except Iowa and the U.S. territories.

• Minimum credit score: 600
• Minimum credit history: Three years

Via Credible.com’s Website

Via Fiona.com’s Website

Below are three tips that can help you compare bad credit debt consolidation loans and find an offer that may work well for your situation.

• Get multiple quotes. It’s wise to shop around and compare offers from multiple lenders any time you’re searching for financing. Doing so could save you hundreds (maybe even thousands) of dollars on a debt consolidation loan. If you can find lenders that offer personal loan pre-qualification , you won’t risk any potential credit score damage from rate shopping.
• Don’t skip over the fine print. Getting a lower interest rate can be one of your biggest challenges if you’re shopping for a personal loan with bad credit. But many people overlook the fact that loan origination fees can also make borrowing money more expensive. Be sure to review the fine print for any additional fees or costs associated with a potential loan so you can determine whether consolidating your debt with a particular lender makes sense.
• Do the math. If you can qualify for a debt consolidation loan with a lower interest rate than you’re paying on your existing debts, it could make sense to move forward. But it’s important to verify the savings potential before you make anything official. A personal loan calculator  can help you compare how much you’re paying on your current debts to the potential costs of a new loan—both on a monthly basis and in terms of overall interest and fees.
• Where to Get a Debt Consolidation Loan with Bad Credit?
• How to Qualify for a Debt Consolidation Loan with Bad Credit?
• How to Get a Debt Consolidation Loan With Bad Credit

A debt consolidation loan is a type of personal loan that can combine several existing debts in a single account. Once consolidated, you’ll have a single monthly payment to a new lender rather than multiple loan and credit card payments as before.

Debt consolidation might also save you money and could be good for your credit score in some situations. With credit card debt, in particular, using an installment loan to pay off revolving balances could lower your credit utilization rate and might improve your credit score as a bonus.

When you take out a debt consolidation loan, you use the new loan to pay off one or more of your existing loans or credit cards. You then only have one payment to manage.

If you can’t make all of your debt payments, a debt consolidation loan can help you get a lower interest rate, making it easier to repay your balance. Along with a potentially lower interest rate, you can also choose a shorter term length, which will help you pay off your debt sooner. Alternatively, you may choose to take out a longer term loan. This makes each monthly payment smaller, but it can increase the total interest you pay over the life of the loan.

When choosing which route to go, it’s always recommended to select terms that you can afford monthly.

Debt consolidation loans aren’t for everyone. Before accepting this financing, consider the pros and cons of debt consolidation :

Pros Of Debt Consolidation

• Simplify your debt. Rather than managing multiple debts, you’ll consolidate your payments into one monthly payment .
• Increase your credit score. Paying off credit card debt with an installment loan can help you increase your credit score, especially if you can avoid racking up a new balance on your credit card.
• Pay off debt sooner.  If you get a lower rate and/or a shorter term length, you can pay off your debt ahead of schedule.
• Shrink your debt payments.  A lower rate and/or a longer term length can help you shrink your monthly payments to a manageable level.

Cons Of Debt Consolidation

• Can reinforce bad habits.  Once you pay off your credit cards, your full credit limit is available to spend again. Some people can’t resist the temptation to keep spending, and in this case, you can end up with twice the amount of debt you had before.
• Lower rates aren’t guaranteed. Interest rates are typically determined by what the lender currently offers and your creditworthiness, so it’s not guaranteed that you’ll get a lower rate on your new loan.
• Can interfere with financing large purchases. Taking on any new debt right before you apply for a big loan, like for a house or a car, can be a red flag to lenders and make it more difficult to get approved for other credit.

Lenders use credit scores to predict risk. Unfortunately, traditional lenders like banks may not be comfortable issuing you a loan to consolidate your debt when you have bad credit. There are, however, some lenders that might work with you even if you have damaged credit.

Related: Debt Consolidation Loan vs. Balance Transfer Credit Card

1. Online Lenders

Online lenders may offer debt consolidation loans with more lenient credit score requirements. However, debt consolidation loans for bad credit tend to feature higher interest rates and sometimes fees to offset the added risk. If the interest rate you qualify for isn’t low enough, debt consolidation might not save you money.

2. Credit Unions

Credit unions are another resource to consider if you want to consolidate debt with a bad credit score. Compared with traditional banks, credit unions are often more willing to approve borrowers with less-than-perfect credit; however, they require membership. Nonetheless, you may have to shop around to find a local credit union or an online credit union that is willing to work with your situation.

Consolidating higher-interest debt at a lower rate can be an effective way to pay off your debt faster and save money on interest. However, finding a personal loan with a lower rate than your current loan can be difficult.

If you’re looking to consolidate credit card debt, you may be able to find a lower APR than what you’re currently paying on your credit card. As of February 2024, the average credit card interest rate was 21.59% APR, according to the Federal Reserve. This rate is similar to what lenders offer personal loan applicants with bad credit.

As you prepare your application, there are ways to improve your chances of qualifying for an affordable debt consolidation loan:

• Check your budget. Develop a comprehensive budget to determine the maximum monthly payment amount you can afford.
• Review your credit report. Review your credit report and contact the credit bureaus if there are any errors. Correcting those mistakes can improve your credit.
• Research different lenders. Research your options and find different lender recommendations for bad credit. Pre-qualifying for a loan can show you the rates and terms you may qualify for without impacting your credit score, and a debt consolidation loan calculator can help you compare costs.

Whether you have bad credit or good credit, the basic loan shopping process is similar to get a consolidation loan .

• Start with a credit review . A lender will most likely review one of your credit reports and credit scores when you apply for a debt consolidation loan. So, you should check your credit from all three credit bureaus—Equifax, Experian and TransUnion—to ensure you meet the credit score requirements for a personal loan .
• Search for lenders that are a good fit . Let’s say your FICO credit score is 580. In this scenario, a lender that requires a credit score of 660 won’t work for you. But a lender with a minimum credit score requirement of 560 could make it onto your list of borrowing possibilities.
• Compare loan options . Some lenders allow you to pre-qualify and discover the personal loan interest rate they might offer you with a soft credit inquiry. Once you find loan options that might work for you, you can compare loans and narrow them down to the best deal.
• Submit an application . The final step to getting a debt consolidation loan is to fill out a lender’s official loan application. Provide the lender with any documents or information it requests right away to avoid potential problems.

A debt consolidation loan for bad credit may not be the best choice for everyone. If your credit prevents you from qualifying for a lower interest rate than you’re paying now, you may want to consider the following alternatives to debt consolidation.

1. Improve Your Credit First

Good credit comes with many perks, including the ability to qualify for better financing. If you’re not in a position to lock in an attractive interest rate on a debt consolidation loan right now, working to improve your credit might give you more options in the future.

When creating your credit improvement plan, remember: You may want to adjust your approach depending on whether you’re building credit from scratch or working to rebuild damaged credit. Either process can take time, but the payoff from earning better credit can make your hard work worthwhile in the long run.

2. Use a Debt Payoff Strategy

If you have some wiggle room in your monthly budget, a debt payoff strategy might work well for you. Do-it-yourself strategies like the debt snowball or debt avalanche method cause you to restructure the way you pay down your debt each month. In the end, each approach has the potential to save you time and money in the debt elimination process.

3. Get Professional Help

Credit card debt and other high-interest debt can sometimes get out of hand. If you’re struggling to keep up with even the minimum payments on your monthly credit obligations, it might be time to talk to a financial professional about your situation.

A nonprofit credit counseling company may have solutions that could help you, including a debt management plan. In extreme cases, you may even want to seek advice from a bankruptcy attorney regarding plans that can provide you with protection from your creditors.

Find the Best Balance Transfer Credit Cards Of 2024

We reviewed 15 popular lenders based on 11 data points in the categories of loan details, loan costs, eligibility and accessibility, customer experience and the application process. We chose the best lenders based on the weighting assigned to each category:

• Loan cost: 30%
• Eligibility and accessibility: 25%
• Loan details: 20%
• Direct payment to creditors: 15%
• Customer experience: 10%

Within each category, we also considered several characteristics, including available loan amounts, repayment terms, APR ranges and applicable fees. We also looked at minimum credit score requirements, whether each lender accepts co-signers or joint applications and the geographic availability of the lender. Finally, we evaluated the availability of each provider’s customer support team.

Where appropriate, we awarded partial points depending on how well a lender met each criterion.

To learn more about how Forbes Advisor rates lenders, and our editorial process, check out our Loans Rating & Review Methodology .

Personal Finance Writer Lindsay VanSomeren contributed to this article.

What credit score is needed for a debt consolidation loan?

Every lender sets its own guidelines when it comes to minimum credit score requirements for debt consolidation loans. However, it’s likely lenders will require a minimum score between 580 and 680.

Credit score requirements can vary widely from one lender to the next. Therefore, it’s wise to find out each lender’s criteria before you apply for financing.

Does a debt consolidation loan hurt your credit?

Consolidating your debt has the potential to impact your credit score in positive and negative ways. Applying for a loan and adding a new tradeline to your credit report are both actions with the potential to damage your credit score.

On the other hand, debt consolidation should help you pay down your debt faster, reducing the number of accounts with balances on your credit report. This could give your credit score a boost.

How do I get out of debt with no money and bad credit?

Getting out of debt when you have limited resources and bad credit can be difficult. If you want to manage the process on your own, your best bet is to try to find ways to cut your expenses, increase your income or both.

However, if you’re in a financial position that feels hopeless or overwhelming, it might be time to consider more extreme measures. Credit counseling or even bankruptcy can provide alternative debt solutions that could deal with an unmanageable financial situation.

Is a debt consolidation loan a good idea?

If you find the right loan with favorable terms, debt consolidation can improve your finances. For example, if your new loan has a lower interest rate than your current loans and/or credit cards, you can reduce the overall cost of your debt. However, if your new loan has terms you can’t afford, such as larger monthly payments, it may not be the best choice for you.

How long does it take to get approved for a consolidation loan?

Approval for a debt consolidation loan is similar in duration to any other personal loan. Some lenders—especially online lenders—offer same-day funding, but it can still take a couple of days for your bank to process the deposit. However, most lenders take a few days to a week to make a loan decision, plus a few extra days to disburse your funds if you’re approved.

Next Up In Personal Loans

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Michelle Lambright Black, Founder of CreditWriter.com and HerCreditMatters.com, is a leading credit expert and personal finance writer with nearly two decades of experience in the credit industry. She’s an expert on credit reporting, credit scoring, identity theft, and the intersection of credit and financing. You can connect with Michelle on Twitter (@MichelleLBlack) and Instagram (@CreditWriter).

Here’s a Sample Letter to Collection Agencies to Settle Debt

Sarah Edwards | April 11, 2024

Legal Expert Sarah Edwards, BS

Sarah Harris is a professional researcher and writer specializing in legal content. An Emerson College alumna, she holds a Bachelor of Science in Communication from the prestigious Boston institution.

Edited by Hannah Locklear

Editor at SoloSuit Hannah Locklear, BA

Hannah Locklear is SoloSuit’s Marketing and Impact Manager. With an educational background in Linguistics, Spanish, and International Development from Brigham Young University, Hannah has also worked as a legal support specialist for several years.

Fact-checked by George Simons, JD/MBA

Co-Founder of SoloSuit George Simons, JD/MBA

George Simons is the co-founder and CEO of SoloSuit. He has helped Americans protect over $1 billion from predatory debt lawsuits. George graduated from BYU Law school in 2020 with a JD/MBA. In his spare time, George likes to cook, because he likes to eat.

Summary: Settling your debt is possible. You can draft your own debt settlement letter using our sample letter below, or start the debt negotiation process with SoloSettle to get the ball rolling on settling your debt.

Is a debt collector pursuing you for an old debt you wish was long behind you? If so, you may try to settle the obligation. Under debt settlement, you agree to pay a certain amount to the collection agency. In exchange, the collection agency accepts your payment and writes off the remaining balance.

Debts settle for 48% of the original value if the matter has not escalated to litiation yet. If there is a lawsuit filed over the debt, the average debt settlement amount increases to 85%. Collection agencies are usually more willing to accept a settlement if your debt is old and past the statute of limitations.

Collection agencies cannot sue you for a debt that passes the statute of limitations. The statute of limitations will vary depending on your state but generally ranges from two to five years.

To get the ball rolling on settling your debt, you’ll want to send the collection agency a written offer for settlement.

Debt settlement letters help resolve debts

Debt settlement is when you negotiate with your creditor and come to agreement to pay off a portion of your debt and be forgiven for the rest. Debt settlement letters are known to help start the negotiation process.

What should I include in my offer to settle a debt?

You’ll want to include specific information concerning your account in your debt settlement letter.

List your name, account information, the original creditor of the debt, and the debt collection agencies identifying information. Include the current amount you owe and the amount you’d like to offer to settle the debt.

Most importantly, request a debt settlement agreement letter that declares the debt will be reported as paid to all the credit reporting bureaus once you’ve fulfilled your side of the agreement. To summarize, include these points in your debt settlement letter:

Your offer to settle the debt should be clear and straightforward. It should express that you’re willing to offer partial payment to eliminate the obligation.

How much should I offer in my debt settlement letter?

60% is a good place to start, but the amount varies based on your financial situation and the collection agency who is suing you.

Like we mentioned before, the average debt settlement is 48% for pre-lawsuit debts and 85% for debt lawsuits, but note that each debt circumstance is unique. In our experience, however, debt collectors and law firms are more likely to accept a settlement of around 70%.

Most collection agencies purchase old debts from creditors for a small fraction of their original value. It’s not uncommon for collectors to pay only 5 or 10% of a debt in exchange for the right to pursue collection activities against you.

Let's look at a debt settlement example.

Example: If you have an old credit card balance of $5K with JP Morgan and decide to sell it to a debt collector, the collection agency may pay only $250 to $500 for your balance. JP Morgan will provide the collector with basic information about your account, like your contact details and the balance due. Once the collection agency owns your account, they’ll send you letters and start calling you to obtain the original value you owe. You can stop further collection activity by offering to settle the debt for a fair price. Offer what you feel you can afford to pay and see if the collection agency is willing to accept.

Use this sample debt settlement letter

You might be wondering how to write a good settlement offer letter. We’ve got you covered.

SoloSettle uses a tech-based approach to draft and send settlement offers to creditors and debt collectors. The offer letter includes all the important legal wording necessary to protect your rights and show collectors that you know your stuff.

Alternatively, you can use this settlement sample letter to help you draft one on your own:

Does the collection agency have to accept my settlement offer?

No, they do not have to accept your offer. However, most collection agencies are willing to take less for your obligation, especially if they don’t think you’ll be able to pay the entire amount.

If the collection agency believes they have grounds to sue you for the debt in court, they may pursue a lawsuit against you. If that is the case, you can still potentially settle the account on your own with the help of SoloSettle .

Settle with SoloSettle

In most cases, working with a collection agency can prevent your account from snowballing into a lawsuit. Debt collectors are often willing to come to a favorable arrangement if you initiate the process, even if it’s before they take you to court. You’ll be able to move on without fear of harassing phone calls or stressful letters.

Use SoloSettle to settle your debt on your own

SoloSettle’s goal is to empower you to negotiate and reach a debt settlement on your own.

With SoloSettle , negotiating a settlement becomes easy due to our structured process. Use our web-app to send and receive offers from collectors. SoloSettle drafts offers for you and protects you from the potential lies and bullying of debt collectors.

Most importantly, SoloSettle makes sure all of the proper legal language is included to protect your rights when communicating with the creditor or debt collector. When a settlement agreement is reached, SoloSettle manages the settlement agreement documentation for you and protects your sensitive financial information from the collectors, preventing them from over-charging you.

Avoid working with debt settlement companies, who don’t always have your best interest at heart.

Check out this review from a real SoloSettle customer:

“I'm very thankful for SoloSettle. Having a third party negotiate the settlement was instrumental in resolving this case and saved me from two giant headaches: 1) I didn't have to deal with the plaintiff's lawyer and 2) I didn't have to go to court. I also love that the payment was processed through SoloSettle. I was nervous about sharing my personal financial data with the other side, but SoloSettle protected that for me. I hope I never get sued again, but if I do, I would use SoloSettle again in a heartbeat. SoloSettle really saved me a ton of time and heartburn and kept me from having to be my own lawyer in court.” - Dan

Settle your debt on your own with SoloSettle.

Check out this video to learn more about how to settle a debt:

What is SoloSuit?

SoloSuit makes it easy to fight debt collectors.

You can use SoloSuit to respond to a debt lawsuit, to send letters to collectors, and even to settle a debt.

SoloSuit's Answer service is a step-by-step web-app that asks you all the necessary questions to complete your Answer. Upon completion, we'll have an attorney review your document and we'll file it for you.

Respond with SoloSuit

>>Read the FastCompany article: Debt Lawsuits Are Complicated: This Website Makes Them Simpler To Navigate

>>Read the NPR story on SoloSuit. (We can help you in all 50 states.)

How to answer a summons for debt collection in your state

Here's a list of guides for other states.

All 50 states .

• Connecticut
• Massachusetts
• Mississippi
• New Hampshire
• North Carolina
• North Dakota
• Pennsylvania
• Rhode Island
• South Carolina
• South Dakota
• West Virginia

Guides on how to beat every debt collector

Being sued by a different debt collector? Were making guides on how to beat each one.

• Absolute Resolutions Investments LLC
• Accredited Collection Services
• Alliance One
• Amcol Clmbia
• American Recovery Service
• Asset Acceptance LLC
• Asset Recovery Solutions
• Associated Credit Services
• Autovest LLC
• Cavalry SPV I LLC
• Cerastes LLC
• Covington Credit
• Crown Asset Management
• CTC Debt Collector
• Cypress Financial Recoveries
• Delanor Kemper & Associates
• Eagle Loan of Ohio
• Estate Information Services
• FIA Card Services
• Forster & Garbus
• Freshview Solutions
• Fulton Friedman & Gullace LLP
• Harvest Credit Management
• Howard Lee Schiff
• Hudson & Keyse LLC
• Integras Capital Recovery LLC
• Javitch Block
• Jefferson Capital Systems LLC
• LVNV Funding
• Mannbracken
• Mariner Finance
• Michael J Adams PC
• Michael J Scott
• Midland Funding LLC
• Mullooly, Jeffrey, Rooney & Flynn
• Mountain Land Collections
• MRS Associates
• National Collegiate Trust
• Nationstar Foreclosure
• Northstar Capital Acquisition
• NRC Collection Agency
• OneMain Financial
• Palisades Collection LLC
• Pallida LLC
• Paragon Revenue Group
• Pinnacle Collections Agency
• Portfolio Recovery Associates
• Provest Law
• Reunion Student Loan Finance Corporation
• Revenue Group
• Regents and Associates
• Salander Enterprises LLC
• Second Round Sub LLC
• Security Credit Services
• Sherman Financial Group
• Suttell and Hammer
• Transworld Systems
• Tulsa Teachers Credit Union
• UCB Collection
• Velo Law Office
• Velocity Investments
• Waypoint Resource Group
• Weinberg and Associates
• Wolpoff & Abramson

We have answers

Join our community of over 40,000 people..

You can ask your questions on the SoloSuit forum and the community will help you out. Whether you need help now are are just look for support, we're here for you.

Win against credit card companies

Is your credit card company suing you? Learn how you can beat each one.

• Bank of America
• Capital One
• Credit One Bank
• PayPal Synchrony Card
• SYNCB/PPEXTR
• Synchrony Bank
• Target National Bank
• Wells Fargo

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How to Make a Debt Validation Letter - The Ultimate Guide

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Not sued yet?

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"Finding yourself on the wrong side of the law unexpectedly is kinda scary. I started researching on YouTube and found SoloSuit's channel. The videos were so helpful, easy to understand and encouraging. When I reached out to SoloSuit they were on it. Very professional, impeccably prompt. Thanks for the service!" - Heather