Home > Managing Debt > Negotiating a Collection Agency Payment Plan: What You Need to Know

Comments 3 Comments

Having a debt in collections can be nerve-wracking, especially when you’re trying to do the right thing and make every effort to pay your debt. It can be even more stressful when the debt collector refuses to work with you. Learn what you need to know about collection agency payment plans below.

Can a Debt Collector Refuse a Payment Plan?

It’s important to know that collection agencies aren’t legally obligated to accept or agree to payment plans. Debt collectors don’t have to work with you or agree to any payment schedules based on what you’re reasonably able to afford. Their goal is to collect as much of the debt as they can as quickly as they can.

Collection agencies don’t often work out extended or long-term payment plans. They are collectors, not lenders. They aren’t interested in slowly collecting monthly payments.

Is My Debt Past the Statute of Limitations?

The statute of limitations for creditors/collectors to file a lawsuit is based on the date of the last payment on the debt. The statute of limitations, which varies by state, restarts when you make any payment to a creditor. If you have attempted to make small monthly payments because you assumed the collector would ease up if they saw any money coming in, then you might simply have extended the collector’s ability to file a lawsuit on the debt.

Best Step: Pay Off a Debt in Collections

You can take some actions to validate the debt and ensure it’s accurate and truly owed. Make sure you understand your rights and stand up for them. But once you know you owe the money, the best step is often to pay off the debt. Even if you can’t pay off all of your debt, try to pay as much as you can.

What About Collection Agency Payment Plans?

If you can’t afford to pay the debt with cash on hand and can’t manage to restructure debt or loans to cover the balance, then you may need to make arrangements with the collection agency. You typically have two options: a settlement or a payment arrangement.

What Is a Settlement?

A settlement occurs when you pay part of the total owed, and the collector agrees to consider the account paid in full. Debt collectors are more likely to negotiate a settlement, often at much lower amounts, if they think there’s a chance that they may not be able to collect at all. You may be able to settle a debt for 50% or less of the total balance, for example.

In many cases, collection companies purchase these debts from creditors for pennies on the dollar. Obviously, they want to collect as much as possible. But as long as they collect more than they paid for the debt, it’s still a profit for them.

To negotiate a settlement, you’ll need some cash immediately to pay the agreed-upon amount. You may also owe taxes on the amount that is forgiven. The IRS considers forgiven debt as income for that year.

Do Collection Agencies Do Payment Plans?

Some collection agencies do consider payment plans. However, they are not legally obligated to agree to a payment plan. And in some cases, even if they agree to a payment plan, they may change the agreement later or file a lawsuit for the remaining amount owed. When entering into a payment agreement with a collection agency, make sure you get everything signed and in writing.

What Happens If You Don’t Pay a Collection Agency?

If you don’t pay a collection agency and you do owe the money, the collection agency may eventually file a lawsuit against you. If the agency gets a judgment in that lawsuit, it can seek repayment of the debt via legal methods such as wage garnishment or freezing your bank accounts.

What to Do if a Debt Collector Won’t Accept a Payment Plan

If you can’t pay the original creditor for any reason and the debt collector won’t work with you on a payment plan, you may need to find another way to make good on this debt. Luckily, you might have some options for other types of debt relief.

Consider a balance transfer card or consolidation loan to pay off the debt and make it “new” again. While you’ll still owe the money, you’ll owe it to a new creditor that has agreed to an account setup that lets you make monthly payments. It keeps you in debt a little longer, but if you make regular agreed-upon payments, it could raise your credit score in the long-term to make up for any hit you took on the collection

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

  • http://www.Credit.com/ Gerri Detweiler

    In many states judgments are enforceable for ten – twenty years, and can be renewed. If you haven’t been able to pay it since 2005, I would urge you to talk with a consumer bankruptcy attorney. It may be time to file and get rid of this debt.

  • Pingback: What’s the Lowest Credit Score You Can Get? ← WORLD NEWS()

  • Megan

    I live in Putnam County NY. A debt attorney firm from Long Island NY has frozen my checking account (the only account I have). My bank gave me the phone number to call and that is how I found out who froze it and why. I was told Capitol One has. a Judgement against me in court since February. I told them I was unaware of this. I asked if I should have been in court? And if I could get copies of any of these pApers. Their answer was get a lawyer. I can’t afford a lawyer and would like to see these papers before I try to borrow the money to pay this. They are looking for $2772 to pay it now. Do I have a right to these papers ?

    • Credit.com

      Hi Megan– Because the company has already frozen your account, this question is a little more complicated so we reached out to our in-house credit and debt expert, Gerri Detweiler. She was kind enough to provide the following in-depth answer:

      I know this must be a scary situation for you. You are right to be cautious, though. There are a lot of collection scammers out there.

      However, if this company was able to freeze your bank account then more than likely there is a judgment that they are collecting on.

      I am not an attorney so I can’t say specifically what documentation they are required to provide in response to your query. However, if you contact the court, they should be able to help you verify that the judgment was entered/when/by whom/for what amount etc. In addition, the judgment is likely listed on your credit reports which you can obtain for free at AnnualCreditReport.com.

      It sounds like it’s possible that you were not properly served with the notice that you were being sued. That does happen. The NY Attorney General cracked down on over 100 debt collectors a few years ago for not properly serving consumers.

      You’ll find some information about the requirements for serving consumers in NJ here: http://www.judiciary.state.nj.us/rules/r6-2.htm

      You’ll find more information about judgments here: http://www.judiciary.state.nj.us/civil/civil_faq.pdf

      If you believe you weren’t properly served and want to try to get the judgment vacated (removed), you will probably need to talk with a consumer law attorney. However, depending on the amount of the judgment and what you still owe after the funds in your bank account are seized, that may make sense. Most consumer law attorneys charge more reasonable fees (they are dealing with consumers, after all, and not corporate clients) and most will give you a free or low-cost consultation to help you determine if you have a case. If it turns out the collection agency broke the law, they may have to pay the attorney’s fees. So it doesn’t hurt to at least talk with one. You can visit NACA.net for a referral to a consumer law attorney.

      The other option is to talk with a bankruptcy attorney. They may be able to help you protect your bank account and get the judgment wiped out in bankruptcy. But you need to do that ASAP – you may not have much time since the action against your account has already taken place.

      –Gerri Detweiler

  • Pingback: Debt Collectors Killing Your Credit? Here’s What To Do | Best Credit Repair()

Credit.com receives compensation for the financial products and services advertised on this site if our users apply for and sign up for any of them.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.



Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team