If your bill is 30 days late, it's unlikely it will go to collections. Instead, you'll probably incur a late fee (or possibly an increase in the APR if the credit account is a credit card). After more than one month of not paying a bill, a creditor's internal collections department may reach out to you about trying to bring the bill current.

If your debt is significantly delinquent–usually 90 days or more past due–your lender may decide to either assign or sell your debt to a third-party debt collection agency. This is sometimes referred to as “charging off” the account. Sometimes collection agencies sell entire portfolios of debt accounts to each other. The reason for this is that the creditor might assume that you are never going to pay your debt; selling the debt to a debt collector or collections agency may help them recoup at least some of their money.

Key Takeaways

  • If your debt is significantly delinquent–usually 90 days or more past due–your lender may decide to either assign or sell your debt to a third-party debt collection agency.
  • This practice is sometimes referred to as “charging off” the account. 
  • When your creditor decides to charge off your account, the charge off–in addition to the account closure–will appear on your credit report.
  • The original delinquency date–when you missed your last payment–remains the same.
  • Your credit history is not altered, and the statute of limitations on credit reporting or on legal collection practices does not reset.

Charge Off Appears on Your Credit Report

When your creditor decides to charge off your account, the charge off–in addition to the account closure–will appear on your credit report. A new account with the third-party debt collection agency will open up, and the date opened on the account is the date purchased from the original (or previous) creditor. In this sense, the previous account is written off by the selling creditor, and a new collection account is opened. From that point on, you owe the debt to the collections agency.

Your Original Delinquency Date Stays Intact

This does not mean that your delinquency is wiped clean, however. The original delinquency date–when you missed your last payment–remains the same. It does not matter how many times the debt account changes hands. Your credit history is not altered, and the statute of limitations on credit reporting or on legal collection practices does not reset.

Collectors cannot legally restart the clock on the statute of limitations (seven to 10 years, depending on the debt) through any re-aging techniques or through the sale to a different debt collector. The Federal Trade Commission has shut down the operations of collection agencies for attempting to re-age debts.

This does not mean that nothing has changed, however. If your debt is moving from an original lender to a third-party debt collector, this new creditor's collection efforts are regulated through the Fair Debt Collection Practices Act (FDCPA). The FDCPA is designed to protect you from unscrupulous or abusive debt collection techniques and generally only applies to third-party agencies.

What You Should Do Next

If you are someone who has had your debt account sold to a third-party debt collection agency, you will likely be made aware of this; they will generally contact you (and sometimes aggressively) to ask for repayment. At any time, consumers can also review their credit reports to find out if one of their accounts has gone to collections. Your credit report will reveal all of your accounts and their statuses.

If a third-party debt collection agency reaches out to you, you have several options. But first, you should gather as much information as possible about the debt. Ask the agency about the original creditor, how much you owe, and if there are any fees that the agency has added on. You may also decide to contact the original lender to confirm that they have sold your credit account, and that the debt collections agency that is contacting you is the correct agency.

Once you have confirmed that the debt is yours, you have the option of working out an arrangement with the collections agency to settle the debt. The agency may offer you the option of setting up a payment plan for the debt.

It is important to keep in mind that, while it is illegal for collections agencies to restart the clock on the statute of limitations for your debt, if you make even one payment on the debt in the new account, the clock will start over.