In the economic turmoil of the past several years, an increasing number of families are experiencing problems with debt collectors. This information is intended to help you understand how debt collection works, and to let you know what your rights are if you’re being hounded by a debt collector.

What are debt collection agencies?
Debt collector agencies are for-profit entities that are typically separate from the company you took out the loan with or owe money to. Occasionally larger companies will have their own in-house debt collection services, but in most cases, debt collection is passed off to companies that specialize in the process.

How do debt collectors work?
In exchange for taking on the task of trying to collect money on delinquent accounts, debt collectors earn a commission on what-ever they collect. If it’s a fairly recent delinquent debt, it may be handed to a company that receives a commission of 30% to 50% of whatever it collects. The remainder is passed on to the company you owe money to. More seriously delinquent debts are often sold outright to debt collection companies, often for pennies on the dollar. The debt collector purchases chunks of delinquent accounts for 1% to 5% of their face value, then gets to keep whatever they are able to collect from these bad loans.

Why do I get calls from several debt collection companies?
This is also why you may get hassled from several different people/places about a delinquent debt. Companies will first try to collect themselves or work with you directly on payment, then pass it off to a commissioned agency when it seems the debt has become a problem. Then if that agency fails, they’ll auction off the remaining debt to a third company just to try and salvage whatever they can from what are otherwise bad loans. At each step, different people from different companies may take over the account, often with little or no knowledge about what the previous collectors have done.