Constant calls from a debt collection agency can pressure you into entering a payment agreement you can't afford. The agent's primary goal is to collect the money you owe to the creditor. He is not concerned about your other bills, expenses or inability to pay. When you can no longer pay the debt, your options are limited. You can try to cancel the agreement, however debt collectors are often unforgiving. If you simply stop paying, there can be costly consequences.
When You Are Obligated to Pay
Without a legally binding agreement, you are not obligated to pay the debt collection agency. Even a verbal agreement is considered binding if your response is recorded. When there is a written contract, you are required to fulfill the agreement in most cases. However, some circumstances grant you the right to stop paying. For example, if the debt exceeds your state's statute of limitations, the debt collector is no longer able to seek repayment, regardless of the agreement made. The statute of limitations for written contracts can be as short as four years in California or as long as15 years in Kentucky. Your state's attorney general's office can provide specific information regarding the statute of limitations for your particular debt. Sometimes debt collectors may change the terms of repayment and demand more, refusing to accept any less. In this case, the collection agency is breaking the agreement. You can file a complaint with the Federal Trade Commission and your state attorney general's office.
Debt collection agencies often charge a termination fee if you fail to complete the payment agreement. You can be held liable for the original debt plus any interest, late fees and the termination penalty. Refer to the contract for specific details about your agreement. Keep records of all payments you made prior to canceling the agreement to ensure the account is credited properly.
Enforcing the Agreement
A debt collection agency is a third party. Typically, the original creditor will be responsible for filing a lawsuit against you to satisfy the debt. When you break the agreement, the debt collector becomes the first party. To enforce the agreement you broke, the collection agency must file a lawsuit against you. If the agency wins, the court grants a judgment ordering you to pay. Once a judgment is obtained, the debt collector can legally garnish your wages, freeze banks accounts and place liens on your property.
If you can't afford to pay the debt, bankruptcy may be an option. When you file bankruptcy, an automatic stay is issued requiring creditors to cease all collection activity. Chapter 7 bankruptcy wipes the slate clean. The court can order you to sell your assets to pay off the debt. With Chapter 13 bankruptcy, your debt is restructured. You'll be required to repay the debt, but generally under better terms. In some cases, unsecured debt is even discharged. Bankruptcy should be considered a last resort, since it will significantly impact your credit score for up to 10 years.
Jeannine Mancini, a Florida native, has been writing business and personal finance articles since 2003. Her articles have been published in the Florida Today and Orlando Sentinel. She earned a Bachelor of Science in Interdisciplinary Studies from the University of Central Florida.