How Does a Debt Collection Agency Work?

  • Mark Edwards ·
  • September 24, 2019

What is a debt collection agency? How do they work? Do they follow a legal process? Many of us know about the debt collection agency Sydney. If you are loan defaulter, you might be thinking that these agencies can go to any extreme to collect the money. However, they follow a legal procedure and work within the law. In this article, we will help you to know more about debt collection agencies and their work process.

What Do They Do?

From the name itself, it is clear that they are designed to collect unpaid loans. They work dependently while following laws and regulations. In some cases, they work as the middlemen and collect unpaid debts on behalf of their customers. The creditor pays an amount to the agency once the collection is done. The percentage can vary from twenty-five percent to forty-five percent depending on the type of debt.

Debt collection agencies can collect any loan that includes medical debt, credit card debt, personal loan, student loan debt, business debt, automobile loan debt, and cell phone bills. They are specialized to collect all types of debts. They can also negotiate debt for the easy collection. They can refer a default case to a lawyer when they fail to collect it after trying all the possible ways.

Debt Collectors Buy Debts

When the original collector finds it hard to collect the debt, they can sell their debts to a debt collector or buyer in fewer prices. They get the price depending on the loan type and period. If the account is quite old and other collectors did not succeed to collect loans, then they sell it at much less price than the original loan amount.

For example, the utility debts are worth less and mortgage debts are worth more. Once an agency buys debt, it does not pay any collection amount to the original creditor. It is their sole responsibility to collect the debt without the intervention of the original creditor. They will bear the loss or profit.

How Do They Work?

Contrary to the belief, they follow a legal process to collect the debts. However, they are more active and keep trying until they have not recovered the full or negotiated amount. First, they use letters and phone calls to convince the delinquent borrowers to repay their loans. When they find it hard to reach the defaulter using the information given by the original creditor, they use private investigators and software to find the contact information. As these are agencies are designed to collect unpaid loans, they try all the possible but legal methods to recover the money.

Also, they collect the information of the debtor’s assets like the bank account to know the ability to repay the loans. In some cases, they report the delinquent debts to the credit bureaus to force the customers to pay their loans. The reason is that a delinquent loan can severely affect the credit score and will make it extremely difficult for the debtor to qualify for a loan in the future.

Debt collection agencies have some limitations. They entirely depend on the debtor to get back the money. They cannot access their bank account and take a paycheck without a legal order. Yes, a court can make them accessible to the bank deposits. For this, they will have to take the defaulter to the court and get a decision in their favor.

Even if the debt collector gets the judicial decision in its favor, it is not always to collect the money. In some cases, when they find it hard to collect the money after a positive court decision, they place a lien on the property or force them to sell the asset to recover the money.


In brief, debt collection is a legal process. Hence, a bit complex. A debt collection agency cannot force you to repay your loans beyond a certain limit. It is not the beginning of an offensive relationship. Many such agencies do their job honestly without exerting unnecessary pressure on the debtors. They will discuss your financial conditions and then plan the repayment accordingly. If some agencies are bothering you much, it is better to know your rights to protect your interests.

Leave a Reply

Your email address will not be published. Required fields are marked *