Detroit and Beyond: What to Do if Your Debt Goes to Collections

Final demand notice concept for debt

Final demand notice for debt |

You forgot about that bill for a doctor’s visit, or you haven’t been able to pay off the tabs on your credit cards. All of a sudden you find a letter in the mail from a debt collections agency, saying you need to pay up, or face a potential lawsuit against you. Within days, collectors start calling you nonstop, demanding payment. Now what happens?

Creditors can send a debt to collections when there hasn’t been a payment in 180 days or more. Unfortunately, this is an all too common issue for many Americans, particularly residents in Detroit. According to a new report from the Urban Institute, 66% of the city’s residents have some type of debt in collections, with a median collection amount of $1,847. Nationwide, about 35% of Americans have debt in collections, with a median amount of $1,541.

According to the report, a large number of Detroit residents have outstanding medical debts. Though medical billing can be a complicated process, residents also have a high level of government debts, such as utility bills or unpaid tickets, and a higher-than-average amount of student loans in collections. All of those factors together suggest that residents in the city have a high amount of financial stress, likely inflicted from a downturn in the city’s economy and relative financial instability since the city declared bankruptcy in 2013.

Detroit and elsewhere: Debt in collections

A credit card company or hospital can’t garnish your wages, and it can’t take your possessions from you as payment for your debt. However, sending your debt to collections can severely harm your credit score. Those agencies believe that if they send your debt to collections, you’ll pay faster so you can keep your credit score largely intact. As Credit Karma explains, the higher your initial credit score is, the more points you can lose after a collection is noted on your credit report. A lower score can make it more difficult to secure loans in the future, or receive favorable terms on new credit cards and interest payments.

The proof is in the data from the Urban Institute, at least in terms of Detroit residents. Only 21% of people living in the city have a prime credit score, compared to 55% of people nationwide. The report doesn’t directly show causation between debt in collections and poor credit scores: You can have bad credit without having debt in collections. However, it’s safe to say they often go hand in hand.

So, what happens when you receive a notice saying you have debt in a collector’s hands? Here are the basic first steps you need to know.

1. Don’t ignore the letters

final notice sticker

Final notice sticker | Logan

While you might prefer to ignore the first notice with red type all over it, your best course of action is to handle it right away. In some cases the collections agency might not have the correct information. Even if you believe you received the notice in error, you need to contact the agency. If a collections notation goes on your credit report, it stays there for seven years. Once it’s paid or resolved, it lessens in its impact, but it can still harm your efforts to take out a loan or secure other credit in the future.

Collections agencies aren’t messing around, either. They’re getting paid for tracking you down, and they’re not going to go away after you don’t respond to their letter. It’s why the medical office or credit card company hired them in the first place. “The hope is that we will need to use our credit one day and we will want to pay that account off so we can get the loan or service that we are applying for,” Becky House, education and communications director for credit counseling agency American Financial Solutions, told NerdWallet.

2. Validate your debt

man multi-tasking at the office with a cup of coffee, a planner, and computer

Paperwork |

The first step of action is to respond to the collections agency, asking them to verify your debt. Agencies are required to do this by law, and your written request will indicate that you’re willing to work with them. “If you don’t communicate with a collector, everything after that becomes less consumer friendly,” Mark Schiffman, vice president of public affairs for ACA International, the main trade group for collection agencies, told

However, don’t agree to repay anything right away, or send a check without verifying the debt in the first place. If the debt is old, it may have already been cancelled due to certain laws in your state, or may be incorrect altogether. “Never acknowledge a debt with a collector or agree to any payment until the collection agency ‘validates’ the debt to prove you do indeed have to repay it,” Sheri L. Stuart, senior communications specialist and education manager for Springboard Nonprofit Consumer Credit Management, Inc., told NerdWallet.

There are also plenty of scams out there, threatening you with jail time or huge fines for debt that isn’t yours in the first place. An agency needs to prove the debt is yours with appropriate documentation from the original creditor. Asking for that proof will weed out any cousins of Nigerian princes who are looking to make a quick buck.

A tip: From the start, all of your correspondence with the collections agency should be backed up with writing. offers free sample letters for every step, including asking for verification. Most experts also suggest sending every correspondence through certified mail, and perhaps requesting a receipt upon delivery. This ensures you have proper documentation of the process.

3. Pay immediately, if possible

Man writing a payment cheque

Man writing a payment |

If you simply didn’t realize a debt was going unpaid and have the funds to cover it, it’s best to do so as soon as the debt is validated. “If you can pay a debt that has newly gone into collections, you may be able to avoid damage to your credit report,” House told NerdWallet. “You typically have 30 days before the collection agency reports it to the credit bureaus.”

With that, your headache might be over. If you will need more time to save up the money, however, you have a few options. Some agencies will negotiate on repayment terms, but not everyone agrees that’s a good idea. House points out that negotiating to pay less than you owed in the first place is noted differently on your credit report, and can be more harmful in the long run. If you can, communicate a plan to the agency, and save enough money to pay off the debt in a lump sum. Of course, get any agreement you reach in writing, on the agency’s letterhead.

Though most agencies accept numerous forms of payment, many experts advise against giving your bank account information, either by wiring the money, paying with a debit card, or using a personal check. Instead, they suggest paying with a money order.

4. If you’re sued, get the right lawyer

Judge gavel, scales of justice

Judge gavel, scales of justice |

If you ignore the collections letters or don’t pay on time, there’s a chance the agency will sue you for the debt. In that case, it’s best to find a lawyer who specializes in consumer law, suggests. The National Association of Consumer Advocates provides a directory of lawyers who focus on this area of law and who might be able to help you.

Additional resources

You do have rights through the collections process. goes over the basics, and provides links to the laws that spell out what collections agencies can and cannot do.

If you have questions or concerns about the collections process, you might find wise counsel at the National Foundation for Credit Counseling or the Financial Counseling Association of America. Both are nonprofits organizations dedicated to helping Americans figure out the best plan of action for dealing with their debt. The Federal Trade Commission also highlights some important basics to note, including what to do if you think a collections agency has violated the law in any way.

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