What Happens When You Get Sent to Collections?

When you get sent to collections, your account has been written off by the original creditor as a loss and handed to a collection agency or sold to a debt buyer, who then has to send you a written validation notice, follow federal rules on how and when they can contact you, and either reach a resolution with you or, in some cases, sue. The process usually unfolds over months or years, and the outcome depends heavily on how you respond at each stage.

Here is what to expect, in the order it typically happens, and what you can do at each point.

How the Account Got There

Before a third-party collector ever calls, the original creditor spends several months trying to collect on its own. Federal banking guidelines generally require creditors to charge off consumer debt when it reaches 120 to 180 days past due.¹ Personal loans and other closed-end loans typically charge off at around 120 days; revolving accounts like credit cards charge off at 180 days.

Charge-off is an accounting move, not forgiveness. The creditor writes the balance off as a loss on its own books, then either routes the account to an in-house recovery team or sends it to a third-party collection agency. Once a third party takes over, a different set of federal rules kicks in.

The Validation Notice and Your 30-Day Window

Within five days of first contacting you, a third-party collector must send a written validation notice showing the amount owed and the name of the creditor the debt is owed to.² The notice also has to tell you that if you don’t dispute the debt within 30 days, the collector will treat it as valid.

Those 30 days matter. If you send a written dispute inside that window, the collector must stop all collection activity on the disputed amount until they produce verification, such as account records or a copy of a judgment.² Send the dispute by certified mail so you have proof of the date it was received. If the collector can’t come up with verification, they can’t keep pursuing the balance.

Miss the 30 days and you have not admitted anything. Federal law is explicit that a consumer’s failure to dispute within 30 days can’t be treated by any court as an admission of liability.² But the collector no longer has to pause activity while they gather proof, and you lose the automatic leverage that a timely dispute provides.

You can also send a written notice telling the collector to stop contacting you altogether. Once they receive it, they can only reach out to confirm they are ending their efforts or to tell you they intend to take a specific legal action, such as filing suit.³ A cease-communication letter stops the calls and letters. It does not erase the debt or block a lawsuit.

How Collectors Can and Cannot Contact You

Federal regulations put boundaries on when, where, and how often a collector can reach you. They can’t call before 8 a.m. or after 9 p.m. in your local time zone, and they can’t contact you at a place they know is inconvenient, including your workplace if they know your employer prohibits personal calls.⁴

A collector is presumed to be harassing you if they call more than seven times in seven consecutive days about the same debt, or if they call within seven days after already having a phone conversation with you about it.⁵ The limit applies per debt, so a collector handling two of your accounts could call seven times a week on each.

Any envelope mailed to you cannot display a logo or text that reveals the contents involve a debt.⁶ Every communication, whatever the channel, must disclose that the sender is a debt collector and that information gathered will be used to collect a debt.

Text messages and emails are allowed, but each electronic message must offer a clear, simple way to opt out of future messages to that address or number, at no fee and without requiring extra personal information.⁴ Social media contact is permitted only through private messages that aren’t visible to the public or your contacts, and any friend or connection request has to identify the sender as a debt collector.⁷

What It Does to Your Credit

A collection account can stay on your credit report for up to seven years. The clock starts 180 days after you first became delinquent on the original account, not from the date the debt was sent to collections or sold.⁸ Reselling the debt does not reset that clock.

How badly the collection hurts your score depends on which scoring model a lender uses. The widely used FICO Score 8 lowers your score for any collection with an original balance of $100 or more, whether or not you later pay it. Newer models behave differently: FICO Scores 9 and 10 ignore paid collection accounts, and VantageScore 3.0 and 4.0 also disregard paid collections.

Medical debt is treated separately. Equifax, Experian, and TransUnion voluntarily stopped reporting paid medical collections and unpaid medical debt under $500. A CFPB rule that would have removed nearly all medical debt from credit reports was finalized but then vacated by a federal court in July 2025 for exceeding the agency’s authority under the Fair Credit Reporting Act.⁹ Unpaid medical debt above $500 can still appear on your report, subject to the standard seven-year limit.

When the Debt Gets Sold

Accounts that stay unpaid after several months of agency effort are often bundled and sold to debt buyers. When that happens, you start hearing from a company you don’t recognize. The buyer has to follow the same validation notice rules: a fresh written notice within five days of first contact and a new 30-day dispute window.²

Debt buyers sometimes lack full documentation from the original creditor, so a verification request can be an effective way to challenge a balance that seems inflated or unfamiliar. A single account can change hands several times over the years, with each sale documented through a bill of sale, and each new owner has to start the validation process over.

Settling for Less Than the Full Balance

You do not have to pay a collection in full to close it. Collectors, especially debt buyers who bought the account at a steep discount, often accept a lump-sum payment for less than the balance. Offers in the range of 30 to 60 percent of the balance are common, though the outcome depends on the age of the debt, what the collector paid for it, and your situation.

Get the agreement in writing before you pay a cent. The letter should spell out the exact amount, confirm that payment satisfies the debt in full, and state how the account will be reported to the credit bureaus. Keep that letter indefinitely. If the balance later shows up again through a recordkeeping error and gets resold, that letter is your proof.

The Tax Hit on Forgiven Debt

Settling for less has a tax side that catches people off guard. When a creditor or collector forgives $600 or more, they are required to report the canceled amount to the IRS on Form 1099-C.¹⁰ The IRS generally treats canceled debt as taxable income, so a $5,000 balance settled for $2,000 could generate a 1099-C for the $3,000 forgiven.

You may be able to exclude the canceled amount if you were insolvent when the debt was forgiven, meaning your total liabilities exceeded the fair market value of everything you owned. The exclusion is capped at the amount you were insolvent by.¹¹ To claim it, you file Form 982 with your return. In counting assets for the insolvency test, include everything you own, including retirement accounts, vehicles, and home equity, even assets that creditors could not legally seize.

How Long a Collector Has to Sue You

Every state sets a statute of limitations for filing a lawsuit on an unpaid debt. For common consumer debts like credit cards and medical bills, these deadlines typically run three to ten years, though a few states allow longer. The clock generally starts on the date of the last payment or the date the account first became delinquent, depending on state law.

After the statute of limitations expires, the debt is “time-barred.” A collector can still ask you to pay, but they can’t successfully sue you, provided you raise the expired deadline as a defense in court. Judges don’t check the statute on their own. If a collector sues on old debt and you don’t show up, or you show up and fail to raise the defense, you can still lose.

Be careful with old debt. In some states, a partial payment or even a written acknowledgment that you owe the debt restarts the statute of limitations, handing the collector a fresh window to sue.

Getting Sued and the Default Judgment Trap

When calls and letters don’t work, a collector or debt buyer may file suit. You’ll be served with a summons and complaint, usually in a local civil court, and you generally have 20 to 30 days to file a written response, depending on your state. In federal court the deadline is 21 days.

Not responding is the costliest mistake in the whole process. If you don’t answer the complaint, the court enters a default judgment, an automatic win for the collector with no hearing on whether the debt is valid or the amount is right. Research estimates that roughly half of all debt collection cases end in default judgment, largely because consumers either never receive the summons or don’t understand what happens if they ignore it.

A judgment typically stays enforceable for 5 to 20 years depending on the state, and most states let creditors renew it before it expires, sometimes repeatedly. Post-judgment interest keeps accruing on the unpaid balance. In federal court that rate is tied to the one-year Treasury rate, around 3.5 percent in early 2026; state rates vary and can be significantly higher.

Garnishment, Bank Levies, and What’s Protected

A judgment unlocks enforcement tools that pull money directly from your paycheck or bank account.

Wage Garnishment

Federal law caps garnishment for ordinary consumer debt at the lesser of 25 percent of your weekly disposable earnings, or the amount by which those earnings exceed 30 times the federal minimum wage.¹² With the federal minimum wage at $7.25 an hour, that threshold is $217.50 a week. If you earn $217.50 or less a week in disposable income, none of your paycheck can be taken. If you earn $300, the most that can be garnished is $82.50 (the amount above $217.50), even though 25 percent of $300 would be $75. Some states impose stricter caps, as low as 15 percent.

Bank Levies

A judgment also allows a bank levy. The court issues an order telling your bank to freeze funds and turn them over. Unlike garnishment, which takes a slice of each paycheck, a levy can pull the entire available balance in one shot. Enforcement continues until the full judgment, plus court costs and accrued interest, is paid.

Property Seizure

A judgment creditor can also obtain a writ of execution directing law enforcement to seize non-exempt personal property and sell it. In practice this is uncommon for consumer debt because state exemption laws protect basic possessions like clothing, furniture, and tools of a trade.

Income That Can’t Be Touched

Some income is shielded even after judgment. Social Security, VA payments, Supplemental Security Income, and other federal benefits get automatic protection under federal regulations. When a bank receives a garnishment order, it must review the account for direct deposits of federal benefits in the prior two months and automatically protect any amount attributable to those deposits, with no paperwork or court appearance required from you.¹³ The protected amount is the total of federal benefit deposits during the two-month lookback or the current balance, whichever is less. Anything above that in the same account can be frozen, so if you receive federal benefits and mix them with other income, a separate account for benefits makes the protected portion easier to identify.

State exemptions layer on top. Many states protect a portion of wages beyond the federal minimum, and some shield specific assets like a primary vehicle up to a set equity value or retirement accounts. State exemptions usually have to be claimed by filing a motion with the court after a levy or garnishment is served. They are not applied automatically the way federal benefit protections are, so once you receive notice of a garnishment or levy, act quickly.

1
Office of the Comptroller of the Currency (OCC). Consumer Debt Sales: Risk Management Guidance
2
Office of the Law Revision Counsel. 15 USC 1692g – Validation of Debts
3
Office of the Law Revision Counsel. 15 USC 1692c – Communication in Connection With Debt Collection
4
Consumer Financial Protection Bureau. 1006.6 Communications in Connection With Debt Collection
5
eCFR. 12 CFR 1006.14 – Harassing, Oppressive, or Abusive Conduct
6
Federal Reserve. Fair Debt Collection Practices Act
7
eCFR. Part 1006 – Debt Collection Practices (Regulation F)
8
Office of the Law Revision Counsel. 15 USC 1681c – Requirements Relating to Information Contained in Consumer Reports
9
Consumer Financial Protection Bureau. CFPB Finalizes Rule to Remove Medical Bills from Credit Reports
10
Internal Revenue Service. Instructions for Forms 1099-A and 1099-C
11
Internal Revenue Service. Publication 4681 – Canceled Debts, Foreclosures, Repossessions, and Abandonments
12
Office of the Law Revision Counsel. 15 USC 1673 – Restriction on Garnishment
13
eCFR. Part 212 – Garnishment of Accounts Containing Federal Benefit Payments