A collection agency is a business that pursues payments on debts owed by individuals or businesses. Some collection agencies operate as agents of other companies, and collect debts for a fee or percentage of the total amount owed. Others work on their own account, purchasing debts from a creditor for less than the dollar amount of the debt and aggressively persuading the debtor to make their payments. A creditor may sell debts to a collection agency in order to remove them from their accounts receivable records; the difference between the original amount loaned and the sale price to the collection agency is written off as a loss.
Some debtors will not voluntarily pay a debt unless they are sued. Many creditors do not realize that there are alternatives to using collection agencies: they can skip collection agencies and go directly to collection lawyers. Some unscrupulous collection agencies use intimidation tactics to scare debtors into paying alleged debts. They may refer the account out to an outside counsel for suit or use in-house attorneys if they have them. This is typically done as a last resort. Regardless of the tactics used, you can be certain that by the time a collection agency gets you account you no longer have clean credit.
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- Debt Collection – How debt collection can hurt your credit.
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- Does bankruptcy wipe the slate clean? – The truth about the impact of filing for bankruptcy on your ability to get credit