Can debt be sent to collections while a debtor is still making payments?

The shortest and simplest answer to this question is yes. When people fall behind on payments to a creditor, they are often tempted by the creditor to “at least pay something” in exchange for withdrawing the threat of sending the debt to a collection agency. Unfortunately, despite a verbal agreement, many creditors still refer consumers to collection agencies even when they continue to make some payments.

There are no federal laws in place to prevent a creditor from referring credit debt to a collection agency despite a consumer’s best, good faith effort. The creditor’s only obligation is to accurately report the status of the credit card account. This means the creditor must report that the credit card account is overdue. Considering credit debt laws and what little is required of creditors, a consumer's initial reaction to making payments may be: why bother? But continuing to make payments might actually be the only way to ultimately be debt-free.

Contact the Creditor Directly

To minimize or eliminate debt, there are some basic debt management strategies. First, the debtor can try talking directly to the creditor. The creditor will not know if the individual has a valid reason for missing payments if they aren't discussed. Many people just make payments for less than the full amount due, without explanation. Before submitting a payment to the creditor, it may be a good idea to call the office and explain why the payment is for less than the balance owed and inquire about the possibility of establishing a payment plan.

Creditors have an economic incentive to work with their customers. Once they refer an account to a collection agency, the creditor must pay the collection agency a percentage of all monies collected, resulting in less money for the original creditor. Some debtors may use this information as an additional bargaining chip. 

If an agreement cannot be reached, it is important not to panic. No one enjoys being referred to a collection agency; however, if a debtor is already dealing with a difficult creditor, a collection agency may actually be a mixed blessing. Most consumer laws are designed to protect consumers from third party collectors (a collection agency), as opposed to creditors collecting on their own accounts. This means, more state and federal protection for the consumer. Each individual has the right to dispute the amount of the debt a creditor is claiming. They also have the right to request that the collection agency or credit card company contact them at home only, not at their place of employment, especially if the employer has a policy against collection phone calls in the workplace.

File a Consumer Complaint

State attorney general’s offices have consumer complaint departments that specifically assist consumers with complaints against collection agencies and credit card companies. The Federal Trade Commission assists with complaints at the federal level. These protections exist to allow debtors to spend more time focusing on getting out of debt, instead of how to avoid the public embarrassment associated with carrying seriously past due debts.