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What to Expect From the Loan Debt Collection Process

If you're struggling with loan debt, the last thing you need is to be blindsided by collectors. Here's what to expect during the debt collection process.

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What to Expect From the Loan Debt Collection Process

If you're struggling with loan debt, the last thing you need is to be blindsided by collectors. Here's what to expect during the debt collection process.

Loan Debt Shackles You

We know how it goes. One missed payment snowballs into two, three, or four missed payments. The fees add up and all of a sudden, you're stuck with loan debt that you'll never be able to pay off and it ends up in default.  Defaulted SBA loans are a different animal than non-SBA loan debt.  This article addresses non-SBA loan related debt.

It's often just as the frustration turns to into despair that your debt is sent into collection.

But what happens after you start receiving calls from collectors? Is there any way to make a bad situation better?

What Happens When Loan Debt Goes Into Collection

The creditor (or bank) that you owe may still own your debt, or they may sell it to a collection agency to collect.

If the bank owns your debt, then the collection agency may collect fees or commission for recovering the money. If the creditor sells the debt, then the collection agency will be even more eager to recover the money.

Regardless of who owns it, prepare to be on the receiving end of many, many phone calls.

You may also get emails and letters from the collection agency.

But know that they won't stop calling. The collection agency has a lot to lose if they don't recover the debt they take on.

That's why your best solution isn't to ignore the calls. No, your best strategy is to negotiate

What to Do When You Get the First Call

For most of us, the first instinct when we get a call from a collection agency is to hide.

Whether we're embarrassed that the debt has reached that point or scared because there's no way we can pay it, all we want to do is unplug the phone and close the blinds.

Do not hide from debt collectors.

Whether they own your debt or they're just chasing commission, they will not stop calling. Moreover, ignoring them will make matters worse.

Instead, follow a strategy to dealing with debt.

It looks like this:

1. Validate the Debt

The first thing you should do is ask the agency to validate your debt.

Validating your debt means finding out how old your debt is, how long your loan debt has been in collections, and whether the agency has valid records of the debt.


Because many states have a statute of limitations on debt. That means a creditor cannot send a decades-old debt into collections and ask for massive fees.

Do not agree to pay the debt until it has been validated.

You may be in luck and the debt may be invalid.

That doesn't mean you don't have to pay - you do need to pay.

Instead, it relieves the pressure because it means the collector can't sue you. (But they might still try.)

Keep in mind, if a company sued you for repayment and won, but they sued you in a different state to the one you live in, they can't make you pay. In fact, it will often cost them more than the debt is worth to transfer the judgment to another state.

2. Figure Out a Way to Pay

The best way to deal with loan debt in collections is to pay the balance.

Paying it off offers more than peace of mind. Collection agencies typically wait 30 days before reporting your failure to pay to credit bureaus.

By paying quickly, you can protect your credit score.

Many of us end up in this situation because we can't pay. If we could, we would have paid the bill in the first place.

Now, that's not a reason to ignore the calls. If your debt is valid and you can't pay, the collector may take you to court, which will inevitably be more expensive than paying the debt alone.

The best course of action if you cannot find a way to pay in one lump sum is to negotiate a payment arrangement.

Tip: If you're currently unemployed or have no assets, let the collector know you're "judgment-proof". This will dissuade them from suing because it means that you don't have wages to garnish or assets to seize even if the collector won.

3. Negotiate a Settlement on Your Loan Debt

It's possible to negotiate a settlement directly with the collection agency, but doing so may be difficult.

Collection agents have monthly targets. They often try to force you into a huge down payment or a strict payment schedule because they want to get their money.

These are essentially sales tactics - don't fall for them.

Put what you can down up front to relieve the burden from yourself. Then, set up a payment schedule that works for YOU.

There is no deadline on collection payments; agents use this trick to get money sooner because if they let you set the deadline, they won't get their money when they want it, which is right now.

4. Protect Your Consumer Rights

Once you've figured out what your debt is, what you owe, and how you're going to pay it back, it's time to get the collectors off of your back.

We said before that it's important to pick up the phone, but that's only to find out what they want.

Collectors will keep calling until the whole debt is paid, but you don't have to answer.

There's no law that says you have to pick up the phone. And if they don't stop calling, send them a written letter requesting they stop contacting you.

If you've got a particularly persistent collection agency, tell them you've passed your debt onto an attorney. Then, they have to stop calling you immediately.

Also, debt collectors can only call between 8 AM and 9 PM. If you're getting calls at all hours, report them.

You Can Get Out of Debt

Loan debt is formidable, especially once it has reached collections. But millions of people find their way out of debt every year - and so can you.

If you're a small business owner and your loan debt has gone into collections, schedule a case evaluation today.

Why Hire Us to Help You with Your Treasury or SBA Debt Problems?

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Millions of Dollars in SBA Debts Resolved via Offer in Compromise and Negotiated Repayment Agreements without our Clients filing for Bankruptcy or Facing Home Foreclosure

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Millions of Dollars in Treasury Debts Defended Against via AWG Hearings, Treasury Offset Program Resolution, Cross-servicing Disputes, Private Collection Agency Representation, Compromise Offers and Negotiated Repayment Agreements

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Our Attorneys are Authorized by the Agency Practice Act to Represent Federal Debtors Nationwide before the SBA, The SBA Office of Hearings and Appeals, the Treasury Department, and the Bureau of Fiscal Service.



Client personally guaranteed SBA 7(a) loan balance of $58,000.  The client received a notice of Intent to initiate Administrative Wage Garnishment (AWG) Proceedings.  We represented the client at the hearing and successfully defeated the AWG Order based on several legal and equitable grounds.



Client personally guaranteed SBA 7(a) loan for $350,000. The small business failed but because of the personal guarantee liability, the client continued to pay the monthly principal & interest out-of-pocket draining his savings. The client hired a local attorney but quickly realized that he was not familiar with SBA-backed loans or their standard operating procedures. Our firm was subsequently hired after the client received the SBA's official 60-day notice. After back-and-forth negotiations, we were able to convince the SBA to reinstate the loan, retract the acceleration of the outstanding balance, modify the original terms, and approve a structured workout reducing the interest rate from 7.75% to 0% and extending the maturity date for a longer period to make the monthly payments affordable. In conclusion, not only we were able to help the client avoid litigation and bankruptcy, but our SBA lawyers also saved him approximately $227,945 over the term of the workout.



The client was personally guaranteed an SBA 7(a) loan to help with a relative’s new business venture.  After the business failed, Treasury was able to secure a recurring Treasury Offset Program (TOP) levy against our client’s monthly Social Security Benefits based on the claim that he owed over $1.2 million dollars.  We initially submitted a Cross-Servicing Dispute, but then, prepared and filed an Appeals Petition with the SBA Office of Hearings and Appeals (SBA OHA).  As a result of our efforts, we were able to convince the SBA to not only terminate the claimed debt of $1.2 million dollars against our client (without him having to file bankruptcy) but also refund the past recurring amounts that were offset from his Social Security Benefits in connection with the TOP levy.

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