Part I: Debt collection primer

As we all know, the pandemic brought with it economic devastation that included millions of job losses, layoffs and reductions in work hours and pay. According to a recent report from the federal Department of Labor, more than 25 million Americans are currently receiving unemployment benefits.

With so many out of work, it’s no surprise that bills are sometimes going unpaid. When that happens, it’s very possible that the debt will go into collections.

For many people knocked out of work by the pandemic, dealing with a debt collector is a new experience. Let’s take a brief look at how debt collection works.

Types of debt collectors

The person who calls to get you to pay a debt is a debt collector. They often work for debt-collection agencies, though some collectors work independently.

Some of the agencies work for the original creditor (for example, a credit card company). When they receive a payment, it’s passed on to the creditor who then pays a percentage of that amount to the debt collection agency.

Types of debt

Debt collection agencies go after all kinds of debt: medical, credit card, car loans, phone bills, personal loans and so on.

In some cases, creditors will cut their losses by selling debt to debt-collection agencies. In a recent article on debt collection, Time magazine stated that the agency then owns the debt you owe, meaning that when the agency receives a payment, it doesn’t send anything to the original creditor.

We will have more basics of debt collection in an upcoming post to our Minnesota Consumer Rights Blog, including what to do when a debt collector calls. Please check back.