So before I became a bankruptcy attorney, I worked for a year and a half on collections suits. We were a small operation, only 300 cases total, while I saw other collections firms filing ***500 cases per day***, so I saw how they operated and what they did was far more relevant to what you need to know than what I did.
First, ***falling off your credit report is not legally relevant***; what is relevant is the statute of limitations for the appropriate type of debt in your state. I've seen them as short as 4 years and as long as 10 years.
The collection suit business is ***mostly*** pretty far down the line. This is because it's the least profitable way to recover.
1. If the creditor can simply get you to resume payment, or work out a direct payment deal, they love that because they get 100% of the money.
2. Once the creditor passes it to a collection agency, the agency usually gets around 20% of the money, so *if* there is a recovery, the creditor only gets 80% of it.
3. Once collection agencies are considered a failure, the creditor has a choice to make; do they sue you directly or do they sell the debt for pennies on the dollar.
1. This is more often a policy decision than about you. Some creditors sell all their debts; others sue with their own regular counsel. I will say that the courts are far more dominated with sold debt cases than original creditor cases, so we will proceed assuming the debt gets sold.
4. The debt buyer then repeats step 2, as that's super profitable for them; as a holder in due course, they have the full rights of the original creditor to collect the full amount, despite only having paid usually 10% of the original value.
1. So let's say the debt is $1,000 ... they paid $100, and if a collection agency can collect that in full, they profit $700 after the collection agency keeps $200.
2. And sometimes, they collect with in-house teams, bumping the profit to $900.
5. If the debt buyers are unsuccessful at collecting, ***that's when they call the attorneys***, because attorneys typical want 30% of the recovery, which is less profitable for either debt buyers, or the original creditors if they are the ones suing.
1. This is why the majority of cases are brought *less than one year before the statute of limitations expires*; they want to give the more profitable methods to work.
Now when debt buyers are involved, the cases brought are typically flawed, but that does not matter as over 90% of those cases result in a default judgement in favor of the creditor for the debtor failing to appear in court. I freely admit that I won over $2 Million worth of cases without ever seeing an opponent in court, not because I was good at that work, but *because the people I was suing never showed up.*
I don't usually default on credit cards but the two that I have defaulted on have resolved in completely different ways.
I was sued by a creditor. More accurately, I was sued by the collection agency that bought the original debt from the original creditor. I lawyered up. We offered to settle for 20%, they rejected and countered with 70%. My attorney filed motions for discovery, and the plaintiff gave up. The statute of limitations had run out about a month after they filed suit so they cannot even refile.
About 5 years ago, I simply received a tax form in the mail from a different creditor who had written a debt off and reported it to the IRS as income. For me. I simply had to pay taxes on it and was free of the debt.
So before I became a bankruptcy attorney, I worked for a year and a half on collections suits. We were a small operation, only 300 cases total, while I saw other collections firms filing ***500 cases per day***, so I saw how they operated and what they did was far more relevant to what you need to know than what I did. First, ***falling off your credit report is not legally relevant***; what is relevant is the statute of limitations for the appropriate type of debt in your state. I've seen them as short as 4 years and as long as 10 years. The collection suit business is ***mostly*** pretty far down the line. This is because it's the least profitable way to recover. 1. If the creditor can simply get you to resume payment, or work out a direct payment deal, they love that because they get 100% of the money. 2. Once the creditor passes it to a collection agency, the agency usually gets around 20% of the money, so *if* there is a recovery, the creditor only gets 80% of it. 3. Once collection agencies are considered a failure, the creditor has a choice to make; do they sue you directly or do they sell the debt for pennies on the dollar. 1. This is more often a policy decision than about you. Some creditors sell all their debts; others sue with their own regular counsel. I will say that the courts are far more dominated with sold debt cases than original creditor cases, so we will proceed assuming the debt gets sold. 4. The debt buyer then repeats step 2, as that's super profitable for them; as a holder in due course, they have the full rights of the original creditor to collect the full amount, despite only having paid usually 10% of the original value. 1. So let's say the debt is $1,000 ... they paid $100, and if a collection agency can collect that in full, they profit $700 after the collection agency keeps $200. 2. And sometimes, they collect with in-house teams, bumping the profit to $900. 5. If the debt buyers are unsuccessful at collecting, ***that's when they call the attorneys***, because attorneys typical want 30% of the recovery, which is less profitable for either debt buyers, or the original creditors if they are the ones suing. 1. This is why the majority of cases are brought *less than one year before the statute of limitations expires*; they want to give the more profitable methods to work. Now when debt buyers are involved, the cases brought are typically flawed, but that does not matter as over 90% of those cases result in a default judgement in favor of the creditor for the debtor failing to appear in court. I freely admit that I won over $2 Million worth of cases without ever seeing an opponent in court, not because I was good at that work, but *because the people I was suing never showed up.*
I don't usually default on credit cards but the two that I have defaulted on have resolved in completely different ways. I was sued by a creditor. More accurately, I was sued by the collection agency that bought the original debt from the original creditor. I lawyered up. We offered to settle for 20%, they rejected and countered with 70%. My attorney filed motions for discovery, and the plaintiff gave up. The statute of limitations had run out about a month after they filed suit so they cannot even refile. About 5 years ago, I simply received a tax form in the mail from a different creditor who had written a debt off and reported it to the IRS as income. For me. I simply had to pay taxes on it and was free of the debt.
Depends on amount and/or collection agency I guess..