When a debt has been charged off, that doesn’t mean it’s wiped away.
What is collection?
Collection is a creditor’s attempt to recover past-due payments by turning an account over to a collection department or agency. Having a debt in collection is a serious negative item on a credit report.
Creditors generally offer a grace period when customers with overdue accounts can pay up before the account is turned over to collection agents. If the overdue debt is not paid by the end of the grace period, the creditor writes off the debt and moves it into collection. Many lenders maintain their own internal collection departments, while some rely on third-party collection agencies.
Lenders have different policies on grace periods for overdue debt. Many overdue credit card accounts are passed to a collection agency after 180 days of non-payment. Depending on the circumstances, either the collection agency or the creditor reports an account that is in collection to credit bureaus.
Customers are sometimes but not always notified when overdue accounts enter collection, and they may not be notified until collection agencies begin contacting them. Consumers can see details about which of their accounts are in collection on credit bureau reports. Delinquent accounts and late payments reflect badly on credit scores and can negatively impact individuals’ ability to obtain credit.
Collection issues are common with medical debt. If a patient struggles with getting health insurance to cover certain procedures, the doctor may bill the patient instead of the insurer. If the conflict with the insurer goes on too long, the debt can end up with a collection agency.
Ezekiel has lost his job as a golf pro after breaking both legs in a skiing accident. He was carrying $15,000 in debt on two different credit cards and is having trouble getting his health insurance to pay the hospital bills from the skiing accident. Unable to either walk or find work in his chosen profession, Ezekiel falls behind on his credit card payments. Meanwhile, he is forced to pay the hospital up front for the costs related to the accident, putting him further behind on his bills.
After six months, his bones are mending but the credit card companies have passed his debt to a collection agency. Although Ezekiel has found work as a golf pro again, the agency is garnishing his wages to collect on his defaulted credit card and medical debt.
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