When debts are sent to collections your financial situation takes a turn for the worse. It’s easy to make mistakes. It’s even easy to forget that you have rights under the Fair Debt Collection Practices Act and New York’s debt collection regulations.

When and how should you act when you’ve got debts in collection? What are the true consequences? When does the situation transform from being an annoyance to being something that you need to take action on?Here’s what you need to know.

Collection Agencies May Only Pursue You for So Long

In New York, the statute of limitations on pursuing an unpaid debt is 6 years. However, the clock can restart if you take any action on the debt, such as writing a creditor with a demand to verify the debt or making any payment on it. If the debt is old, the best thing you can do is usually to leave it alone.

You Should Be Strategic About Choosing to Pay Off These Accounts

If you have only one or two accounts in collections and the balances are relatively small, then you might want to go ahead and clean them up.

On older credit scoring models this won’t help your credit score any. But it will on newer ones, where collection accounts that have a “zero” balance are essentially ignored. 

If the amounts in collections represent amounts you couldn’t possibly pay in your lifetime, or you have dozens of accounts in collections, then you might want to start thinking about bankruptcy instead. 

“Settling” These Accounts is Usually a Waste of Money

Some collection agencies offer to settle the debt for 70% to 80% of what it’s worth. They get a little money out of you. You get them out of your hair. It feels like a win-win.

Unfortunately, settled accounts drag your credit score down further than unpaid accounts do. They’re essentially all about throwing good money after bad.

You Can Make Them Stop Calling You

All you have to do is contact them in writing. Tell them that they’re only allowed to contact you by mail from now on. If they violate your wishes, then you can sue them under the Fair Debt Collection Practices Act.

It Can Take Seven Years to Get Them Off Your Credit Report

That seven years can feel like forever if you’re trying to dig yourself out of a financial hole. High interest rates, being denied jobs, and the other consequences of a low credit score can make it a lot harder for you to get ahead.

If you file for bankruptcy all of those items drop off your credit report at once, which is why our clients tend to see their credit scores increase, not decrease, after their discharges. 

A Collection Agency May Sue You

This is without a doubt the most concerning consequence of a debt that has gone to collections. A debt collection lawsuits can lead to bank levies, wage garnishments, and other consequences that can put you directly into a financial tailspin.

Never ignore a debt collector lawsuit. If you’re served, reach out to our office right away. Filing for bankruptcy can stop a lawsuit in its tracks, but only if you act fast.

See also:

Are You Languishing in the Pre-Bankruptcy “Sweatbox?”

How Does Wage Garnishment Work in New York?

5 Bad Ways to Manage Bad Debt