O’Bryan Law Offices represents Bankruptcy clients throughout all of Kentucky and Southern Indiana. We offer in-person and video/telephone consultations for people so they can understand their financial options from the comfort of their own home.
You should never pay a collection agency or charge-off account for these critical reasons:
They purchased your debt for pennies on the dollar
Paying collections rarely improves your credit score
The debt may be past the statute of limitations
You have legal rights that collection agencies often violate
Better debt relief options may be available to you
Dealing with debt collectors can be overwhelming and stressful. The constant phone calls, threatening letters, and potential legal action can make you feel trapped with no way out. Many Kentucky and Indiana residents face this situation daily, unaware that paying a collection agency might actually harm their financial future rather than help it.
At O’Bryan Law Offices, Attorney Julie O’Bryan has been a board-certified consumer bankruptcy specialist for over 30 years, helping thousands of Kentucky residents resolve debt problems and get a fresh financial start.
Our Louisville bankruptcy lawyer will help you evaluate your options and determine the best path forward for your financial situation.
5 Reasons Why You Should Never Pay a Collection Agency
1. They Purchased Your Debt for Pennies on the Dollar
Collection agencies typically buy debt from original creditors for 1-10% of the actual amount. These debt collection agencies don’t own your debt; they simply purchased the right to collect from you.
When debt collectors contact you, they’re trying to make a profit on their investment. They have no relationship with you and didn’t provide the original service or product.
2. Paying Collections Rarely Improves Your Credit Score
⚠️ Paying a collection account typically doesn’t significantly improve your credit score. Most credit scoring models treat paid and unpaid collections similarly.
Once a debt is reported as a collection account, the damage to your credit is already done. Paying it off doesn’t remove the negative item from your credit report, which will remain on your credit report for seven years from the date of the first missed payment.
3. The Debt May Be Past the Statute of Limitations
When a debt is past the statute of limitations, it becomes “time-barred,” meaning debt collectors can’t successfully sue you for payment. Making even a small payment can restart the limitation period, giving the debt collector may renewed ability to take legal action.
Collection agencies often pursue debts that are beyond the statute of limitations, hoping consumers won’t know their rights. Before making any payment on the debt, check if the statute of limitations has expired.
Hypothetical Scenario: Consider James from Louisville, who received calls about a 7-year-old credit card debt. When he made a $50 payment to “show good faith,” he accidentally restarted the statute of limitations, allowing the collector to sue him for the full amount plus interest. Had he verified the debt’s age first, he could have avoided this costly mistake.
4. You Have Legal Rights That Collection Agencies Often Violate
Many collection agencies use aggressive tactics that violate the Fair Debt Collection Practices Act (FDCPA). This federal law prohibits debt collectors from using abusive, unfair, or deceptive practices when collecting debts.
If you’ve experienced harassment, false statements, or threats, the debt collector may have violated your rights. Rather than paying a debt collector who’s violated the law, you may have grounds to take legal action against them.
5. Better Debt Relief Options May Be Available to You
Paying a collection agency isn’t your only option when dealing with debt. For many Kentucky residents, alternatives like bankruptcy, debt consolidation, or debt settlement may provide more meaningful relief.
These alternatives can often resolve your debt problems more effectively while providing legal protections. Bankruptcy, in particular, can discharge unsecured debts completely and provide an automatic stay against all collection efforts.
Before deciding to pay a debt collector, consult with our bankruptcy attorney to explore all available options. You may find a solution that provides complete relief rather than merely addressing a single collection account.
What Is a Charge-Off and How Does It Affect Your Credit?
A charge-off occurs when a creditor gives up on collecting a debt and writes it off as a loss. This doesn’t mean you no longer owe the debt—it simply means the original creditor has removed it from their books and likely sold it to a collection agency.
Charge-offs severely damage your credit score, often dropping it by 100 points or more. This negative mark can make it difficult to obtain new credit, secure housing, or even get certain jobs.
Charge-offs remain on your credit report for seven years from the date of the first missed payment that led to the charge-off. This is true regardless of whether you eventually pay the debt.
Kentucky consumers face particular challenges with charge-offs because the state has a high rate of credit card debt compared to neighboring states. Local financial advisors report that the average Kentuckian with credit card debt carries a balance of over $5,800.
Do You Have to Pay Debt Collectors?
Legally speaking, you do have an obligation to pay legitimate debt, but there are important exceptions and protections that might apply to your situation. Debt collectors cannot compel payment without going through proper legal channels.
The Consumer Financial Protection Bureau enforces regulations that protect consumers from unfair collection practices. Under these rules, you have the right to request validation of the debt before paying anything.
💡 Kentucky bankruptcy laws provide specific protections for residents facing collection actions. These include restrictions on wage garnishment and limitations on what assets collectors can pursue, even with a court order.
When Should I Pay Collections?
While we generally advise against paying collection agencies, certain situations might warrant consideration:
If you’re applying for a mortgage and the lender requires you to settle the debt, paying may be necessary. Mortgage underwriters often require collection accounts to be resolved before approving loans.
When the debt is recent and legitimate, and you have the financial means to settle it, negotiating a settlement for less than the full amount could be beneficial. Always get any settlement negotiation in writing before making payment.
If a lawsuit has already been filed and you’ve confirmed the debt is valid and within the statute of limitations on debt, resolving it might prevent legal complications. Failure to respond to a summons could result in a default judgment against you.
Hypothetical Scenario: Sarah from Frankfort was applying for a home loan when her lender flagged a $2,000 collection account from three years ago. While normally she might have disputed this debt, her mortgage approval was contingent on resolving it. She negotiated a settlement of 40% with documentation that the debt was satisfied, allowing her mortgage to proceed while minimizing her financial loss.
If a Debt Is Sold to Another Company, Do I Have to Pay?
When your debt is sold to another company, your legal obligation to pay doesn’t automatically disappear. However, this transfer creates an opportunity to exercise your consumer rights.
When a debt changes hands, documentation errors and information gaps frequently occur. The new debt owner must still prove they legally own the debt and that the amount is accurate. Many collection agencies cannot produce the necessary documentation to legally enforce the debt.
What Happens If You Don’t Pay Collections?
The consequences of not paying a collection account depend on several factors, including the debt’s age, amount, and the creditor’s practices. Here’s a typical timeline of what may occur:
Timeline
Collection Agency Actions
Potential Consequences
30-90 Days
Frequent calls and letters
Stress and harassment
3-6 Months
Account may be sold to another collector
Repeated collection attempts from new agencies
6-12 Months
Credit score damage continues
Difficulty obtaining new credit
1-3 Years
Possible lawsuit if within statute of limitations
Court judgment, wage garnishment
3-7 Years
Continued credit reporting
Impact diminishes over time
After 7 Years
Collection falls off credit report
Minimal impact on credit score
Even if you don’t pay, the debt will remain on your credit report for seven years from the date of the first missed payment.
What Can a Collection Agency Do If I Don’t Pay?
If you don’t pay a debt, collection agencies have several legal tactics they may employ:
Continue collection attempts: Collection agencies may continue to contact you through phone calls, letters, emails, and even text messages.
Report to credit bureaus: The collection account can stay on your credit report for seven years, negatively impacting your credit score.
Sell your debt: They may sell your debt to another collection agency, resulting in new collection attempts.
File a lawsuit: If the debt is within the statute of limitations, a debt collector may file a lawsuit against you.
Seek a judgment: If they win the lawsuit, they can obtain a court order to garnish your wages or levy your bank accounts.
Kentucky law limits wage garnishment to 25% of your disposable income, providing some protection even in worst-case scenarios. Additionally, certain types of income such as Social Security benefits have additional legal protections against garnishment.
Can a Debt Collector Refuse a Payment Plan?
💰 Yes, debt collectors can legally refuse payment plans, as they’re not obligated to accept partial payments. However, this refusal can sometimes work in your favor during settlement negotiation.
Collection agencies typically prefer lump-sum payments that close accounts quickly. Many will reject payment plans initially but may become more flexible if they believe it’s their only chance to recover anything.
Under Kentucky law, once a payment arrangement is agreed upon in writing, it becomes legally binding on both parties. Always get any payment plan agreement documented in writing before making your first payment.
Struggling with collection calls or threats? Contact us today to learn your rights and stop the harassment before it escalates.
The statute of limitations determines how long a creditor or collection agency can legally sue you for an unpaid debt. This timeframe varies by state and type of debt.
In Kentucky, the statute of limitations on different types of debt is as follows:
Type of Debt
Statute of Limitations
Notes
Written Contracts
15 years
Most formal loans
Open Accounts
5 years
Credit cards, revolving accounts
Verbal Agreements
5 years
Oral promises to pay
Promissory Notes
15 years
Includes most personal loans
Judgments
15 years
Can be renewed
According to the Kentucky Legislature’s statutes, Kentucky has one of the longest limitation periods for written contracts in the nation. By comparison, neighboring Indiana has an 8-year limit on written contracts and 6 years for open accounts.
Once a debt is past the statute of limitations, it becomes “time-barred.” While collectors can still attempt to collect, they cannot successfully sue you. If they do file a lawsuit, you can raise the expired statute as a defense to have the case dismissed.
How Bankruptcy Can Help With Collection Accounts
Bankruptcy offers powerful protection against debt collectors and can eliminate most types of unsecured debt, including credit card debt, medical bills, and collection accounts. When you file for bankruptcy, an automatic stay immediately stops all collection efforts.
Chapter 7 bankruptcy can discharge unsecured debts completely in as little as 3-4 months. This means the debtor is no longer legally obligated to pay the debt, and collectors cannot pursue payment.
Chapter 13 bankruptcy creates a repayment plan over 3-5 years, with remaining unsecured debts potentially discharged at the end of the proceeding. This can be especially helpful if you’re facing a debt collection lawsuit or wage garnishment.
Attorney Julie O’Bryan has helped thousands of Kentucky residents eliminate collection accounts through bankruptcy. As one of only six board-certified consumer bankruptcy attorneys in Kentucky, she has the expertise to manage complex debt situations.
⚖️ You’re shielded by the automatic stay – The second you file, collectors must back off or face penalties.
Case Example: Last year, our firm helped a Louisville family eliminate over $45,000 in collection accounts through Chapter 7 bankruptcy. The family had been struggling with aggressive debt collectors for years after medical emergencies and job loss. Within 100 days of filing, all their unsecured debt was discharged, giving them a true fresh start.
Steps to Take When Dealing With a Collection Agency
When a debt collector contacts you, follow these essential steps to protect your rights:
Request a debt validation letter: By law, debt collectors must provide verification of the debt. This should include the amount, the original creditor, and proof they have the right to collect.
Keep detailed records: Document all communications, including dates, times, and the content of conversations with collectors.
Respond in writing: Send all communications via certified mail with return receipt to create a paper trail.
Know your rights: Familiarize yourself with the FDCPA protections against harassment and false representations.
Consider your options: Look into bankruptcy, debt settlement, or a debt management plan as alternatives to paying the full amount.
Consult with our attorney: Speak with our bankruptcy attorney who will advise you on the best course of action for your specific situation.
For Kentucky residents, the Kentucky Legal Aid Society offers resources specifically for dealing with debt collectors, including template letters for requesting validation and disputing debts.
How O’Bryan Law Offices Can Help
At O’Bryan Law Offices, we understand the stress and anxiety that collection accounts can cause. Our team has been helping Kentucky and Indiana residents overcome debt problems since 1994.
Attorney Julie O’Bryan is board-certified in consumer bankruptcy by The American Board of Certification—one of only six attorneys in Kentucky with this distinction. This certification demonstrates her extensive knowledge and experience in handling complex debt situations.
We offer comprehensive debt relief services, including:
Free initial consultations to evaluate your options
Protection from creditor harassment
Chapter 7 bankruptcy filing to eliminate unsecured debts
Chapter 13 bankruptcy to create manageable repayment plans
Strategies to rebuild your credit after debt resolution
With offices in Louisville, Frankfort, and New Albany, we make it convenient for clients throughout Kentucky and Southern Indiana to get the help they need.
Our Conclusion on Why You Should Never Pay a Collection Agency
Paying a collection agency rarely benefits your financial situation and can sometimes make things worse by restarting the statute of limitations or validating questionable debts. Before making any payments, always verify the debt, check if it’s time-barred, and consider better alternatives like bankruptcy.
For most Kentucky residents struggling with debt, consulting with our knowledgeable bankruptcy attorney is the first step toward finding true relief. With proper guidance, you can escape the cycle of debt and rebuild your financial life.
FAQs
Can I Restart the Statute of Limitations by Making a Small Payment?
Yes, making even a small payment on an old debt can restart the statute of limitations in Kentucky. This is one of the most dangerous aspects of interacting with debt collectors. A partial payment acknowledges the debt and gives the collector a new timeframe to legally sue you, even if the debt was previously time-barred.
Will Ignoring Collection Calls Hurt My Case?
Ignoring collection calls alone won’t hurt your legal position, but it’s generally better to document the communication. You can request that collectors stop calling (preferably in writing), after which continued calls may violate the FDCPA. However, ignoring a formal lawsuit summons can result in a default judgment against you.
How Does a Charge-Off Affect My Ability to Get a Mortgage in Kentucky?
A charge-off can significantly impact your ability to qualify for a mortgage in Kentucky. Most lenders require charge-offs to be resolved before approving a home loan. FHA loans, popular in Kentucky, typically require that all collection accounts over $1,000 be paid or in a payment plan before closing, while conventional loans may have stricter requirements.
What Happens to My Spouse’s Credit if We Share Debt That Goes to Collections?
If you and your spouse are both named on an account that goes to collections, both credit reports will be negatively affected. In Kentucky, which is not a community property state, your spouse is generally not responsible for debts solely in your name, even if acquired during marriage. However, joint debts affect both parties equally regardless of who incurred the charges.
What Should I Bring to My Initial Consultation With O’Bryan Law Offices?
For your free initial consultation, bring recent collection letters, credit card statements, a list of all debts, pay stubs or income verification, tax returns from the past two years, and any lawsuit paperwork you’ve received. This information helps us understand your complete financial situation and determine the best strategy for addressing your debt challenges.
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