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When you owe a creditor a debt and fail to pay, the creditor might hire a debt-collection agency to exhaust all possible means to collect the debt. This can include legal action.
Strategy
Typically, a collection agency initializes contact through written correspondence and telephone calls stating that you owe a debt and need to make payments.
Arrangements
Upon your verbal agreement to make payments through the collection agency on the debt you owe, the agency is likely to require you to sign a written and legally binding document that states the agreed-upon payment amount and due days.
Breach
If you breach the agreement with the collection agency by failing to make payments on the debt, the agency will probably file a lawsuit against you as a third party for the unpaid balance of the debt and possible additional charges (such as interest and attorney fees).
Alternative
Another reason that a collection agency might sue you is because it purchased your debt from your original creditor. This makes the agency the owner of the debt, giving it the ability to freely pursue collection through legal means.
Considerations
The Federal Trade Commission, through the Fair Debt Collection Practices Act, has placed strict regulations on how a collection agency or debt collector is to handle the collection process.
Source:
Federal Trade Commission: Debt Collection FAQs - A Guide for Consumers
Consumer Credit Help: Can a Collection Agency Sue Me for a Debt Owed?
More Information:
Federal Trade Commission: Fair Debt Collection Practices Act
Privacy Rights Clearinghouse: Debt Collection Practices - When Hardball Tactics Go Too Far
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