Part 2 of the 4-Part
Debt Settlement Series
If you're considering debt settlement, it's important to understand how debt collectors operate. Knowing their process helps you compare how long it will take you to raise settlement funds versus how quickly accounts typically move through the collection cycle.
This page explains how debt collectors work and what typically happens at each stage of the collection process. The goal is to help you understand what may happen to your accounts as they age and move through the system.
Please note: This is the typical collection cycle. Your accounts may follow a slightly different path depending on the creditor and the agency.
This is Part 2 of a 4-part series. If you haven’t read Part 1 yet, we recommend starting there first.
During this stage, creditors typically use phone calls, letters, emails, and text messages. The tone is generally friendly. With most (though not all) creditors, you're usually safe from lawsuits during this period of delinquency.
Installment loans typically charge off at 120 days of delinquency. Your runway of safety runs out faster with loans since they charge off about two months earlier than credit cards or lines of credit. The good news is that once charged off, interest and late fees often stop. Charge-off also opens up options that weren’t available before, such as more affordable monthly payments or settlements paid in installments.
Credit cards and lines of credit typically charge off at 180 days of delinquency. Once charged off, interest and late fees often stop. Just like with installment loans, charge-off opens up options that weren’t available before, such as more affordable monthly payments or settlements paid in installments.
If you haven’t yet resolved your accounts by this stage, this is when you need a coordinated plan to tackle all of your delinquent accounts. After charge-off, the accounts may be worked internally, placed with a collection agency, sold to a debt buyer, or referred to an attorney. If worked internally, placed with an agency, or sold to a debt buyer, the accounts could be recalled and placed with an attorney in as little as a couple months. Placement rotations are typically every 3-6 months throughout the remainder of the 7-year collection cycle. Meaning your unresolved accounts face the risk of being placed with a collection attorney every 3-6 months until they're resolved or expire from the statute of limitations.
Your goal is simple: make agreements on all of your delinquent accounts as fast as possible. The objective is to view your situation holistically and finalize negotiations on all of your accounts before they get placed with an attorney and become much more expensive to resolve.
You don't have a high probability of success if you can't settle or make payment arrangements on all of your charge-offs relatively quickly. If you can't, filing bankruptcy should be considered instead of a long-term debt settlement approach.
Good settlement and payment plan opportunities usually exist when the account is being handled by an internal recovery department, collection agency, or debt buyer.
If a charge-off is initially placed with the internal recovery department, the department will usually handle these accounts from 7-60 days before either selling or placing the account.
Most collection agency placements are temporary and generally span about 3-6 months. If the collection agency hasn't either settled or made a payment plan on the account, they lose it and the account migrates generally to either another collection agency or a collection attorney.
A lot of debt buyers wait 3-6 months after purchasing the account before placing it with a collection attorney. A lot of debt buyers have a tendency to sue after this timeline.
There is a small window of safety when accounts are placed with a collection agency or purchased by a debt buyer. This is why it's vital to settle or make payment arrangements fast. A payment plan you both agree to can keep the account where it is while you pay. It does not guarantee the placement stays. Once the account moves to a collection attorney, settlement costs often increase significantly and your risk of being sued rises sharply.
The law firm will usually send you a letter stating they are now collecting on the account. They will generally give you a minimum of 30–35 days to work out an arrangement before filing a lawsuit.
Settlement and payment plan terms with collection attorneys are usually much less favorable than with internal recovery departments, debt buyers, or collection agencies. You will often have to pay significantly more than what could have been achieved earlier.
If you don't have a way to settle all of your delinquent accounts relatively quickly and you prefer to avoid filing for bankruptcy, we also offer a Payment Plan service for charged-off accounts.
The goal is to negotiate the smallest payment the collector will accept, so you can regain control, rebuild financially, and settle later when you're financially prepared to do so.
Having a payment plan in place can reduce the chance the accounts are placed with an attorney while you rebuild. It does not satisfy the debt until you settle it.
Details are on the services page or in the FAQ.