What happens when debt is sold to a collection agency

If a company can't get a payment from you, they may resort to a debt collection agency. The debt collectors will then become responsible for claiming debt from you instead.  

What does a debt collection agency do?

Debt collection agencies deal with unpaid debts. If you have a debt you can no longer afford to pay, and you can't come to a mutual agreement with the lender, they may resort to a debt collection agency.

The lender usually sells your account to the debt collector, which means you'd then owe money to the debt collection agency instead.

In some cases, the original lender won't sell the debt but ask the agency to contact you on their behalf to collect the money you owe.

What happens when the debt is sold to a debt collection agency?

When a debt collection agency buys the debt, they become the new owner of it. From then on, you'll deal with them rather than the original lender. The agency will contact you to arrange payment. You may be able to agree on repaying what you owe over several monthly payments. Since the debt collection agency usually buys debt for less than the outstanding amount, they might accept a lump sum for less than you originally owed to settle the account.

If your debt was sold to a debt collection agency, then this will be recorded on your credit file as a default. Even if you pay the debt off, it will stay on your file for six years and harm your credit score.

Find out more about your credit score.

What happens if I get a letter from a debt collection agency?

If you get a letter from a debt collection agency, you should contact them to discuss payment. The original lender will have passed on your contact details. You may receive phone calls from the agency as well.

In some cases, they may send someone to your home to collect a payment, but you're not obliged to pay them this way. If they do turn up at your home, they must show proof of their identity. You don’t have to let them in, and they can't remove anything from your home. If you decide to make a payment to a visiting agent, make sure to get a receipt.

If you ignore any letters from a debt collector, they may increase your debt if they add interest charges. However, they can only add interest if this was stated in the terms and conditions of your agreement. Continuing to ignore them could result in court action against you, so it's always best to come to an arrangement as soon as possible.

If you're struggling with debt, some organisations will be able to offer you free advice, including StepChange, National Debtline, and Debt Advice Foundation.

Can I dispute a letter from a debt collector?

Yes, you can dispute a letter from a debt collector if you don't believe that the debt is yours. In this instance, you should write to them - you can use this sample letter - and ask them to provide evidence that the debt is yours. If the debt is yours and you want to dispute the amount, then write to them with any evidence to show the amount you think it should be.

If a debt collection agency continues to contact you without providing proof it belongs to you, or you feel that they're harassing you, you should raise a complaint with them. Once they send you a response, (or if they don’t reply at all within 8 weeks) you can make a complaint with the Financial Ombudsmen. To check that the debt collection agency is genuine, you can check the Financial Services Register.

You can also dispute a debt if any of the following is true:

• the lender didn’t get you to sign a credit agreement
• you were under the age of 18 when the credit agreement started
• you felt pressured into signing the credit agreement.

Read on to see how to reach your financial goals.