Why You Should Never Pay a Collection Agency Directly? (2024)

You should never pay a collection agency, even if they demand payment immediately and directly. This repayment will remain as a transaction on your credit report for several years. This type of debt repayment could negatively affect your credit score, leaving you with limited options for obtaining loans and harming your financial life in other ways.

A bankruptcy lawyer can help determine the best steps to take regarding the unpaid debt you owe. Having an attorney on your side can help you deal with the debt collector in a legally favorable manner that helps you now and well into the future.

What Could Happen to Your Credit Report If You Pay a Collection Agency Directly

Having a debt with a collection agency account will harm your credit score and can remain on your credit report for years, even if you pay it. By paying the collection agency directly, the notification of the debt could stay on your credit report longer than if you attempt to use another option, like filing for bankruptcy.

When institutions check your credit report and see this information on it, it may harm your ability to obtain loans. By going with a different means of paying back the debt, such as setting up a settlement plan, you could potentially have the negative entry leave your credit report sooner.

Don’t Just Ignore the Debt Collector’s Phone Calls Either

Even though immediately paying the debt collector may not be a good option, it’s worse to ignore the collection call altogether. Problems can arise when you ignore a debt collection call, including:

Interest: You’ll accumulate interest and perhaps even collection fees on the money you owe during the time you are ignoring the collection agent.
Negative Effects: Not taking care of the debt will continue to negatively affect your credit score until you explore your options and take steps to remedy the situation.
Lawsuit: The collection agency could bring a debt collection lawsuit against you, potentially leading to a wage garnishment and a freezing of your bank accounts and assets.

Instead, you should tell the debt collector to stop calling you. Then reach out to a bankruptcy attorney to figure out the best way to handle your situation.

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Never Pay a Collection Agency Without Weighing All Your Options

Although it can feel like you are backed into a corner when you receive a call from a debt collection agency, do not panic.

Depending on your situation, you may have multiple options. Don’t let the debt collector bully you into making a direct, immediate payment. Instead, explore whether another action may fit your situation better:

Filing for Bankruptcy

Although some people have a negative feeling about filing for bankruptcy, it may be your best option in a case like this.

By filing for bankruptcy, you can receive some legal protections that aren’t available in other situations. It gives you time to come up with a plan for repaying the debt as it stops all collection proceedings immediately. You may even be able to receive forgiveness for some types of debt, like credit card debt or medical debt.

A bankruptcy law firm can explain more about the process of filing bankruptcy and determine whether it fits your situation.

Creating a Debt Repayment Plan

If you believe you’ll be able to repay the debt eventually but need to spread it out over a longer period of time, developing and agreeing to a payment plan may be a good option for you.

This can be a better option than bankruptcy for some. A personal finance attorney can help you decide. However, if you go with this option, you won’t receive the same types of legal protections you receive when filing for bankruptcy.

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Never Pay a Collection Agency Directly Without Determining the Legitimacy of the Debt

Sometimes, a debt collection company may reach out to you mistakenly or illegally. A debt collection call also could be a scam. Never pay the money without first investigating the legitimacy and legality of the call.

The Collector Must Give You Proper Notice

Debt collectors cannot just report your debt to credit bureaus unless they follow certain steps, as specified by the Consumer Financial Protection Bureau, including:

Speaking with you about the debt
Sending you a letter about the debt
Giving you a reasonable amount of time to respond to the letter

If the collection agency reports the debt to the credit bureaus without following proper procedure, you may be able to bring legal action.

The Debt Should Be on Your Credit Report

To be sure whether the debt in question is legitimate, check your credit report. All your debts should have a listing on the report.

If you don’t believe you owe this money, don’t recognize the company that you supposedly owe, and the debt isn’t listed on your credit report, the debt collection call may be a scam.

You May Have Already Paid the Debt

It’s possible you paid the debt, but the company made a mistake and sent it to a collection agency anyway. If so, explain the situation to the collector and don’t send the collection agency any money. If you can’t seem to untangle this type of situation on your own, a personal finance lawyer can help.

Seek Help from Our Bankruptcy Lawyers When Dealing With a Collection Agency

At Farmer & Morris Law, PLLC, we have decades of collective experience helping people deal with debt collectors. We know the importance of never paying a collection agency without checking out your various legal options first.

For a free consultation, contact our legal team today. We can discuss the advantages of filing for bankruptcy and explore other options that may fit your specific situation.

Contact our team today so we can fight to help you get the compensation you deserve.

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Bankruptcy FAQ:

How Much Do You Have to Be In Debt to File Chapter 7?

You do not have to be in a specific amount of debt to file Chapter 7 bankruptcy. Your income might play a role in your ability to file for Chapter 7 bankruptcy protection, and you might be required to

What Happens If I Declare Bankruptcy?

When you declarebankruptcy, you willfile a petitionin federal court. Once your petition for bankruptcy is filed, your creditors will be informed and must stop pursuing any debt you owe. The

What Is the Difference Between Chapter 13 and Chapter 7 Bankruptcy?

One key difference between Chapter 13 and Chapter 7 bankruptcy is that Chapter 7 allows people to completely eliminate their unsecured debt after a specific period. In contrast, Chapter 13 allows

What Is the Downside of Filing For Bankruptcy?

Filing for bankruptcy protection is considered a statement on your ability to repay your debt to your creditors. The fact that you sought and received bankruptcy protection will remain on your credit

What Will I Lose If I File Bankruptcy?

Most people who file bankruptcy are able to keep all of their assets. Filing for bankruptcy may seem like an overwhelming experience. However, a lawyer from our firm can help you through the process.

What Is the Process of Filing Bankruptcy?

The process of filing bankruptcy begins with deciding which type of bankruptcy is right for you. You will then need to compile important financial documents, submit a petition to your local bankruptcy

FAQs

Why You Should Never Pay a Collection Agency Directly? ›

By paying the collection agency directly, the notification of the debt could stay on your credit report longer than if you attempt to use another option, like filing for bankruptcy. When institutions check your credit report and see this information on it, it may harm your ability to obtain loans.

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Why should you never pay a collection agency? ›

A collection account can significantly damage your credit score, but the impact lessens over time. Paying off a collection might not immediately improve your credit score, but some newer credit scoring models give less weight to paid collections.

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Can you pay a company directly instead of the collection agency? ›

If you have delinquent debt that's been sent to collections, there might be options. In some cases, you may still be able to negotiate repayment directly with your lender. Working with your original creditor instead of a debt collector can be beneficial. However, this approach won't work for everyone.

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Is it better to pay the collection agency or the original? ›

Generally, paying the original creditor rather than a debt collector is better. The creditor has more discretion and flexibility in negotiating payment terms with you. And because that company might see you as a former and possibly future customer, it might be more willing to offer you a deal.

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What happens if you pay a collection agency? ›

Paying off collections could increase scores from the latest credit scoring models, but if your lender uses an older version, your score might not change. Regardless of whether it will raise your score quickly, paying off collection accounts is usually a good idea.

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What's the worst a debt collector can do? ›

The worst thing they can do

If you fail to pay it off, the collection agency could file a suit. If you were to fail to show up for your court date, the debt collector could get a summary judgment. If you make an appearance, the collector might still get a judgment.

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What should you not say to a collection agency? ›

If a debt collector tries to collect a time-barred debt from you, the most important thing is not to say or do anything that in any way admits that you owe the debt. By acknowledging the debt or even making even a token payment, you might inadvertently restart the limitations period.

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Should I pay off a 3 year old collection? ›

If you have the means to pay off old debt, it will help your overall credit — both your score and your report. Remember that even if debt is time-barred, creditors and debt collectors can still reach out to collect debts.

What happens if I pay the creditor and not the collection agency? ›

Unfortunately, you're still obligated to pay a debt even if the original creditor sells it to a collection agency. As long as you legally consented to repay your loan in the first place, it doesn't matter who owns it. You may be able to pay less than you actually owe, though.

When should you not pay collection accounts? ›

You may not want to pay a collector if you will never have any income or assets, if you don't owe the debt, if you want to settle for less, if the statute of limitations has expired, or if the collector doesn't own the debt.

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How can I get a collection removed without paying? ›

If there are negative items on your credit report but the information is accurately reported, you can write a goodwill letter to ask the creditor or collection agency to remove the collections account from your report. This isn't guaranteed to work, but it won't hurt to ask.

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What happens if I pay the original creditor instead of collection? ›

If you're able to do so, pay the original creditor before your debt goes to collections. Having a debt sent to collections will damage your credit score and may limit your options for repayment. In most cases, the original creditor will offer better repayment options than a debt collector will.

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Will collections delete if I pay? ›

NOTE: Paying a debt collection account doesn't remove it!

The balance will show as $0 and the status would be listed as paid in full. However, the collection account itself will still remain. If you settle an account for less than the full amount owed, the balance should also be reduced to zero.

Should I ever pay a collection agency? ›

Never Pay a Collection Agency Without Weighing All Your Options. You may eventually decide you must pay a collection agency to prevent a lawsuit. But don't panic and send off a payment without checking all your options and taking stock of what you can afford in a repayment plan.

Do collections go away if you pay them? ›

Collections accounts generally stick to your credit reports for seven years from the point the account first went delinquent, even if the account has been paid in full.

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Why is it bad to pay accounts in collections? ›

A person who pays back a severely past due account shows more financial responsibility than someone who never paid it. You can eventually benefit from one of the newer FICO® Score models. The FICO 9 model gives less weight to medical bills and ignores paid accounts in collections entirely.

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Is it bad to pay off collection accounts? ›

Collections and your credit score in a nutshell

Collection accounts may affect your credit scores and may stay on your credit reports for up to seven years. Paying off collection accounts can have a lot of benefits, including potentially improving some of your credit scores.

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Is it OK to ignore debt collectors? ›

Not responding to a properly served lawsuit – even if you're unsure whether you owe the debt – can result in the court issuing a judgment against you, which could limit your ability to dispute the debt, even if it's already been paid or you don't owe it.

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