Reader Question: What happens when collection accounts are sold

We've been receiving some great credit questions this week! Keep 'em coming! Here's one common question about collection accounts we received from Gaylon:

When an old debt is about to be seven years old and another collection company buys the account does the seven years start over? Also, when does the clock start ticking on the seven year period? On the day you open the account or the date when the account went into collection? I thought it was the day you opened the account.

The world of collections is one of the most illogical and bewildering parts of the credit universe. Consumers are confused as to how it works and collection agencies don't help by often distributing inaccurate information. But in reality, this system is fairly simple.

Collection records are added to your credit report when an unpaid debt is sold by the creditor for pennies on the dollar. The collection agency that buys the account will then track down the consumer and contact them asking for the debt to be repaid. Consumers have very specific rights when dealing with collectors under the Fair Debt Collection Practices Act.  If the consumer pays, it's a jackpot for the collection agency. If the consumer doesn't pay, the agency may sell the account for even less to another collection company. Each new collection agency can place a record on the consumer's credit report.

Once seven years have passed from the last 180-day late payment on the original account (before it was sold to collections), all the collection records should be automatically removed from the consumer's credit reports. If the consumer pays the collection account at some point, the credit report record will be marked as paid but will not be removed until that 7 year date arrives.  Because the collection record is not removed, paying the account will only give your credit score a very small boost.

Here is an example:  if you had a medical bill that was 180 days late in June 2000 and was sold to collections, all subsequent collection records would expire in June 2007. Most credit reports now have the expiration date printed next to the account records for convenience.  Keep an eye out for unscrupulous collection agencies that try to change the "date assigned" record on your credit report. This illegal tactic is sometimes used to keep a collection record on a consumer's report longer.

Credit.com has a free guide to dealing with collection agencies online here. Share your questions and feedback about collection agencies in the comments section below.

Comments

[Lowell Poffenberger]

If a credit card account is charged off and the account is sold to another collection agency,what is my rights regarding the repayment of the debt?

[EmilyPeters]

You can real all about your rights under the Fair Debt Collection Practices Act online here - http://www.credit.com/credit_information/credit_law/Fair-Debt-Collection-Practices-Act.jsp

[C.R.]

I have been divorced for 3 years now and my ex-wife has been remarried for 3 years. She has taken my girls'(19 & 16) in for Dr. visits and charged my insurance without my consent or knowledge. I am getting bills from these Dr. offices! Is this legal? I have already had one clinic bill affect my credit negatively. The most recent letter I received is a rejection from an insurance policy that I haven't had in effect since June!(she was well aware of this fact when she charged the bill to me) How can an office do that without my consent? My ex has a different last name but my girls have mine.

[C.R.]

I have been divorced for 3 years now and my ex-wife has been remarried for 3 years. She has taken my girls'(19 & 16) in for Dr. visits and charged my insurance without my consent or knowledge. I am getting bills from these Dr. offices! Is this legal? I have already had one clinic bill affect my credit negatively. The most recent letter I received is a rejection from an insurance policy that I haven't had in effect since June!(she was well aware of this fact when she charged the bill to me) How can an office do that without my consent? My ex has a different last name but my girls have mine.