Can I Just Ignore This Collection Debt? How to Decide

Credit card delinquencies are up. Debt collection calls? Also way up.

If you've got one or more accounts that have charged off and gone to collections, you're far from alone. So the question becomes: what should you do about it?

Usually, accounts fall behind because we can't afford to make the payments in the first place, and that probably hasn't changed. But if we can pay, should we? What are the incentives for paying off a debt that's in collections? And what are the potential ramifications for attempting to ignore a collection debt?

In other words, can you safely just keep ignoring the problem? Here's how to decide how to handle a debt that's gone to collections.

Arguments for ignoring a collection debt

You can't make a payment even if you want to

Third party debt collection typically works like this:

• Once a credit card account reaches 181 days past due, the creditor may choose to charge it off and claim the lost profit in order to lower their tax liability.
• The original creditor can then sell the account to a third party collection agency for less than total balance.
• Although the collection agency purchased the debt for less than what you owed, they can still attempt to collect the full amount.
• Most collection agencies are happy to settle the debt. Any settlement or debt resolution plan will likely be much cheaper than other debt repayment options because you're only paying off a portion of the original debt. If you'd rather have a nonprofit counselor handle the negotiation, MMI's debt resolution plan can help—sometimes settling for as low as 50% of what you owe. 

Of course, if you can't afford to make any sort of payment, than settling or agreeing to a repayment plan are both off the table. 

The statute of limitations will eventually expire

All states have statutes of limitations on all the different types of debts you can incur. These limitations can vary from 3 years to 15 years, depending on where you live and the type of debt.

These statutes protect you from being sued by a creditor after a certain amount of time has passed. It doesn't mean that creditors won't continue to collect the debt, however. It just means that if they try to sue you after the statute of limitations has expired, you'll be able to use that as your defense.

You may be judgment proof

Regulations are in place to protect seniors and financially-vulnerable consumers from collections efforts that may jeopardize their ability to manage their basic needs. If you qualify as "judgment proof" certain income sources (including Social Security, VA benefits, SSI, and retirement funds) may be protected against potential garnishment to repay debts.

Arguments against ignoring a collection debt

Interest and fees don't stop accruing

You may think that once a debt hits the collection department it becomes frozen in amber, unchanged by time. But unfortunately that's not the case.

In fact, debt collectors are able to charge interest and fees. If you ignore a debt in collections, over time it may balloon to something many times bigger than the original debt.

You may be sued by your creditors

Creditors and collection agencies are more willing than ever to use the court system to recover their money. According to research from The Pew Charitable Trust, debt collection cases take up an increasingly large percentage of civil court cases. Where 1 in 9 civil cases were debt claims in 1993, that figure is now over 40%. Additionally, Pew estimates that approximately 1 in every 20 adults with collection debt were sued in 2021.

The most common outcome of being sued by a creditor is that your wages will be garnished until the debt is repaid. A wage garnishment can make an already tight budget completely unmanageable. 

Your credit will be severely damaged

In all likelihood, once you've reached this point, your credit may already be toast. That said, clearing a debt in collection, even with a settlement, can do a lot to accelerate your credit recovery.

Many of the newer credit scoring models will ignore collection accounts once they're reported as paid in full or paid less than full balance (settlement). Simply not having those account included in your score calculations can make a significant difference.

What should you do about your collection debt?

To reach a conclusion, start by asking yourself the following questions:

Can I afford to repay any of this debt?

If the answer is a firm NO, then that's that. If you truly have no money then even if the creditor sues you, they may not be able to get anything out of you.

That said, just because you think you can't afford to pay anything, doesn't mean that a court will agree with you. You may be struggling mightily, but that may not protect you from a potential wage garnishment.

Does the cost of paying outweigh the headache of not paying?

Debt collection calls are annoying. Damaged credit makes life more expensive. The threat of a potential lawsuit and wage garnishment can add a huge amount of stress into your life.

What it's worth to make those things go away? If you could negotiate a settlement for half of the original balance and make all of those threats and all of that stress go away, would it be worth it to you?

For most people, the answer is yes and getting out from under collection debt is worth the effort. But that may not be true for you.

Ultimately, it's up to you to decide what's the best way to deal with any of your debts. Weigh the pros and cons of each action, consider your finances and what you can afford, and factor in your goals and how your choice will impact those goals. 

And if you need help clearing away collection debt, MMI offers nonprofit settlement through our debt resolution plan. We can work with your creditors to negotiate a partial repayment with affordable terms and fees that are 50% lower than for-profit settlement companies. Get started today and see if a plan is right for you.