Understanding the Check Collection Process and Debts You Have In Collections

If you've recently discovered that a check you wrote was returned or a bill you owe has been sent to collections, it's important to understand what that means. When a payment fails due to low balance in the account or a missed due date, it can trigger a process that leads to your debt being handed over to a collection agency. This can impact your credit, increase debt, and lead to ongoing collection efforts. The check collection process and debt collections follow a specific path that involves multiple parties, deadlines, and potential fees. 

As overwhelming as it might seem, understanding how these systems work can help you avoid unnecessary penalties and take the right steps to resolve the issue. In this article, we’ll walk you through how to check collections, what it means to have a debt in collections, and how you can respond effectively and responsibly when contacted.

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Understanding How to Check Collection 

When a check goes unpaid due to insufficient funds, a closed account, or another issue, it kicks off the check collection process. Initially, the business or service provider (the original creditor) may attempt to collect the funds. This is called internal collections. You might receive reminders, calls, or notices directly from them, urging you to resolve the balance quickly.

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If the debt isn't paid, the creditor may take further action by transferring it to a third-party collection agency or selling it to a debt buyer. Third-party collectors work on behalf of the original creditor to recover the funds, while debt buyers purchase the debt outright and then collect for their profit. Additional fees may apply at this stage, and the debt could impact your credit report.

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The Check 21 Act, enacted in 2004, allows banks to use digital images of checks instead of physical checks for processing. Knowing whether you're dealing with the original creditor or a third-party collector can help you understand your rights and the best way to handle the situation.

Finding Out Which Debts Are in Collections

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Reviewing your credit reports is the best place to start if you’re unsure whether you have any debts in collections. The three major credit bureaus—Experian, TransUnion, and Equifax—each maintain records of your credit history, including any accounts that have been sent to collections. These reports will show who the original creditor was, the amount owed, and the name of the collection agency handling the debt.

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You can view your credit reports for free at AnnualCreditReport.com, the official site authorized by federal law. You're entitled to one free report from each bureau every year, and currently, you may be able to check more frequently. Once you have your reports, look for a section labeled “Accounts in Collections” or “Collections.” This section will give you clear insight into any outstanding debts and help you take the next steps toward resolving them.

What if a Debt Isn’t on My Credit Report?

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If you discover that a debt isn’t showing up on your credit report, it doesn't necessarily mean that it doesn’t exist or is no longer being pursued. Some debts, especially those relatively new or unreported to the credit bureaus, might not appear on your credit report immediately. Additionally, not all creditors report to all three credit bureaus, so a debt might only show up with one or two of them.

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It's also possible that a collection agency has yet to report the debt, or the account may still be in the early stages of the collection process, where it hasn't been formally reported yet. One way to identify any outstanding debts is by reviewing adverse action letters. If you've recently applied for credit and were denied, or if there was an unfavorable change in terms, you might receive an adverse action letter. This letter will explain the specific reasons for the decision, often citing debts in collections or delinquent accounts. 

Contacting Creditors and Debt Collectors

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If you suspect you have a debt that isn't on your credit report or are unsure about the status of a debt in collections, contacting your creditors directly is an important next step. Start by contacting the original creditor—the company or service provider to whom you originally owed money. They can confirm whether they still hold the debt or if it has been transferred to a third-party collection agency.

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If the debt has been transferred or sold, the creditor will provide you with the name and contact details of the collection agency handling your account. At this point, it’s essential to communicate with the debt collector to discuss payment options, verify the amount owed, and ensure the debt is legitimate. Keeping open communication with the original creditor and the collection agency can help you avoid further complications, such as legal action or damage to your credit score.

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Verifying Debts with Collection Agencies

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When a debt has been transferred to a collection agency, it's crucial to verify it is legitimate before taking further action. The best way to do this is by sending a debt verification letter to the collection agency. This letter formally asks for debt verification, including data such as the original creditor, the total amount due, and any relevant supporting documentation.

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Under the Fair Debt Collection Practices Act (FDCPA), debt collectors must respond to this request within 30 days, providing you with clear evidence of the debt’s validity.

If you're unsure about the legitimacy of a debt or need help verifying collections on your credit report, Shepherd Outsourcing can guide you through the process. Our team specializes in ensuring legal compliance, helping you request debt verification, and resolving discrepancies with creditors.

Understanding Your Rights Under the FDCPA

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The FDCPA gives you several important protections when dealing with collection agencies:

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• Right to Request Debt Verification: You can ask for proof that the debt is yours and that the collection agency has the right to collect it.
• Protection Against Harassment: Debt collectors cannot call you repeatedly, use threatening language, or harass you in any way.
• Right to Dispute the Debt: If you believe the debt is incorrect, you can dispute it within 30 days of receiving the first collection notice.
• Right to Limit Contact: You can request that debt collectors contact you only at specific times or through certain methods (e.g., by mail).
• No False or Misleading Information: Collectors cannot lie about the amount you owe, who you owe it to, or the consequences of not paying.

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Knowing your rights helps you handle the collection process confidently and protects you from illegal practices.

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A report by WebRecon says, “In July 2024, there were 368 FDCPA cases filed, which marked a significant 21.9% increase from June 2024. This suggests that the upward trend in FDCPA-related lawsuits has been consistent throughout the year”.

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Types of Debt That Can Go to Collections

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Not all debts end up in collections, but several common types are more likely to be sent to a collection agency if unpaid for too long. Here are the most frequent types of debt that can end up in collections:

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1. Credit Card Debt: When you fail to make your credit card payments on time, your account may become delinquent. The credit card company might transfer your debt to a collection agency if you miss payments. The longer you delay payment, the higher the fees and interest rates may become.
2. Medical Bills: Medical debt is another common debt that is often in collections. They may be sold to collection agencies if you don’t pay your hospital or doctor bills. However, in May 2023, the three major credit reporting agencies, Equifax, Experian, and TransUnion—announced they would remove all paid medical debts and those under $500 from credit reports. This decision aims to reduce the impact of medical debt on consumer credit scores, recognizing that unpaid medical bills are often caused by factors beyond a person’s control, like insurance issues.
3. Auto Loans: If you fail to make car loan payments, the lender may repossess your vehicle and send the remaining balance to a collection agency. Even if your car is repossessed, you can still be held responsible for any remaining amount owed on the loan after the sale of the car.
4. Student Loans: Federal student loans that go unpaid for a long time can eventually be sent to collections. While federal loans have protections such as deferment or forbearance, the loan may be turned over to a collection agency if these options aren’t used and payments are missed. Private student loans can also go to collections if they remain unpaid.
5. Utility Bills: Unpaid utility bills, such as for electricity, water, or gas, may eventually be sent to collections if left unresolved. These debts often come with penalties and interest if they go unpaid for extended periods.
6. Personal Loans: Whether from a bank, credit union, or private lender, personal loans that go unpaid can be sent to collections. Missing payments on a personal loan can have a significant impact on your credit score, especially if the loan is unsecured.
7. Rent and Lease Payments: If you miss several rent or lease payments, the landlord or leasing company may turn the debt over to collections. In some cases, they may pursue legal action or take steps to evict you as well.
8. Store Credit or Financing: Many stores offer credit cards or financing options for large purchases. If you don’t pay off the balance or fall behind on payments, the store may send your debt to collections.
9. Tax Debt: If you owe back taxes and fail to pay them, the IRS or state tax authorities may send your debt to collections. However, the IRS has specific procedures and can garnish wages or levy bank accounts if the debt is unpaid.

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Each debt type can be sent to collections if they remain unpaid for a significant period. Once a debt is in collection, it can affect your credit score, and the collection agency may take legal action to recover the debt. It’s important to address debts early to avoid being sent to collections.

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Impact of Collections on Your Credit

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When a debt is sent to collections, it can have a major and long-lasting effect on your credit. Here’s how collections can affect your credit score and overall financial standing:

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1. Lowering Your Credit Score: One of the most immediate effects of having a debt in collections is a drop in your credit score. A collection account is a significant negative entry on your credit report and can cause a substantial drop in your score, particularly if it’s the first time a collection account shows up. The more recent the collection, the bigger the impact it will likely have on your score.

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2. Damage to Your Credit History: Collection accounts remain on the credit report for up to seven years from the date the debt became delinquent. Even if you pay off the collection, the record of the collection will remain, continuing to affect your credit history. However, newer credit scoring models like FICO Score 9 and VantageScore 3.0 take a more lenient approach. These models disregard paid collections when calculating your score. This means that once a collection account is paid, it won’t negatively affect your score under these newer models, offering some relief for consumers who have resolved their debts.

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3. Difficulty Obtaining New Credit: Lenders often view collection accounts as a sign of financial irresponsibility, making it harder for you to qualify for new credit, such as loans, mortgages, or credit cards. The collection account on your credit report may result in higher interest rates or less favorable terms. In some instances, you might even be denied credit entirely.

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4. Impact on Loan Applications: If you apply for a loan, like an auto or mortgage loan, having a collection account on your credit report may impact the lender’s decision. Many lenders see collection accounts as a risk and may reject your application or offer less favorable loan terms.

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5. Potential for Increased Fees and Higher Interest Rates: A lower credit score due to a collection account means that any credit you approve could come with higher interest rates and fees. This can increase the cost of borrowing and affect your ability to handle debt efficiently.

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6. Potential for Garnishments or Legal Action: In some cases, if the collection account isn’t resolved, creditors may seek legal action. This could result in wage garnishment or a lien placed on your property. Although this doesn’t directly affect your credit score, it can increase financial pressure and potentially leave a long-term negative impact.

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Although a collection account on your credit report can damage your score, there are opportunities to rebuild your credit over time, particularly if you take action to resolve the debt. Paying off the debt, maintaining good standing with other accounts, and disputing inaccuracies on your credit report can reduce the lasting impact of a collection on your credit.

Handling Debt Collections

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Dealing with debt collections can feel overwhelming, but there are steps you can take to manage the situation effectively. Whether you're looking to negotiate with the collection agency or challenge the debt, knowing your options can help you approach the process with greater confidence.

Strategies for Negotiating with Collection Agencies

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If your debt has been sent to collections, the collection agency may be open to negotiation. Here are some strategies to consider:

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• Request a Payment Plan: If you can’t afford to pay the full amount owed, ask the collection agency if they will accept smaller monthly payments. Agencies are often willing to work with you, especially if you are willing to resolve the debt.
• Offer a Lump-Sum Settlement: In certain situations, collection agencies may agree to settle for a lower amount than the total owed if you are able to pay a lump-sum amount in full. Be sure to get any settlement agreement in writing before sending any payment.
• Ask for a Pay-for-Delete: If you can afford to pay the debt in full or through a settlement, consider negotiating a "pay-for-delete" arrangement. This is where the collection agency agrees to remove the collection account from your credit report once the debt is paid. While not all agencies will agree to this, it can be worth asking for.
• Get Everything in Writing: Before making any payment, always ask the collection agency for written confirmation of the agreement. This protects you from potential disputes or misunderstandings down the line.

Filing Disputes with Credit Bureaus if Debts Appear Incorrect

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If you notice a debt on your credit report that you believe is incorrect, it’s important to dispute it as soon as possible. Here’s how to handle the dispute process:

• Review Your Credit Report Carefully: Ensure that the debt in question is yours, the amount is correct, and that the collection account belongs to the right creditor. Sometimes, errors can occur, such as duplicate entries or outdated information.
• Disputing Inaccurate Information with Credit Bureaus: You can dispute with any of the three major credit bureaus—Equifax, Experian, and TransUnion—online, by mail, or over the phone. Each bureau will investigate the dispute and typically respond within 30 days. If they find the debt is inaccurate or cannot be verified, it will be removed from your credit report.
• Provide Supporting Documentation: When filing a dispute, be sure to provide any evidence that supports your claim. This could include proof of payment, correspondence with the creditor, or any other relevant documentation.
• Follow Up: After filing a dispute, keep track of the progress and any results. If the bureau upholds the collection account despite evidence of an error, you can request a more detailed investigation or seek legal advice.

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By using these strategies to negotiate with collection agencies or file disputes with the credit bureaus, you can take control of the situation and work toward resolving the debt to benefit your financial future. ​

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At Shepherd Outsourcing, we understand that dealing with debt can be stressful and overwhelming. Our team provides personalized solutions customized to your unique financial situation.

Conclusion

Dealing with debt collections can be a stressful experience, but understanding how to check collection, debt process, and your rights can help you regain control of your financial situation. With the right approach, you can negotiate with collection agencies, dispute incorrect debts, and better understand how collections impact your credit. Taking proactive steps, such as addressing unpaid debts early on, can help you avoid long-term financial consequences and begin rebuilding your credit.

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If you're struggling to manage or settle your collections, Shepherd Outsourcing is here to help. Our team specializes in facilitating more favorable settlement terms and finding solutions for you. 

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Get in touch with us.

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FAQs

1. How does the check collection process work?

A: When you write a check, the bank verifies if sufficient funds are available. If approved, the money is transferred to the recipient’s account. If insufficient funds exist, the check may bounce, leading to fees or collection actions.

2. What happens if a check bounces due to insufficient funds?

A: If a check bounces, the bank may charge an overdraft fee, and the recipient can pursue collection efforts. In some cases, repeated bounced checks could lead to legal consequences or the debt being sent to a collection agency.

3. How do debts end up in collections?

A: Debts are sent to collections when payments are overdue for an extended period, usually 90–180 days. The original creditor may sell the debt to a collection agency, which then attempts to recover the outstanding balance from the debtor.

4. Will a debt in collections affect my credit score?

A: Yes, once a debt is reported to collections, it can significantly lower your credit score. Collection accounts typically stay on your credit report for seven years, impacting your ability to secure loans, credit cards, or favorable interest rates.

5. Can I negotiate a debt that is in collections?

A: Yes, you can negotiate with the collection agency to settle for a lower amount, request a payment plan, or ask for debt validation. Some agencies may agree to remove the debt from your credit report upon full or partial payment.