In extremely rare scenarios, a debt can be recalled from a collections agency and back to the original creditor.
In this situation, the borrower agrees to pay the debt in full if the original creditor regains ownership of the debt.
As part of the agreement, the collection account may then be eliminated from a borrower’s credit report, since the debt would no longer reside with the collection agency.
The debt would return to a delinquent status account with the original lender.
This strategy assumes the derogatory impact of a defaulted loan and collection account can be mitigated, thus creating a direct route to improving credit score.
Is it better to work with the original creditor or a collection agency?
It is always better to work with the original creditor as soon as possible.
By the time a debt becomes delinquent, the borrower is already more than aware that they are struggling to meet payment obligations.
Financial difficulties may be due to:
- job loss
- medical situation
- shopping addiction
It can be any number of different scenarios tied with overspending or lack of income. Regardless of the situation, the result is always the same.
The sooner a borrower communicates with their creditors that they are having trouble making payments, the better it is.
In pre-delinquency and the early stages of delinquency, there may be options available.
These options will likely disappear when a debt is close to being in default.
How do I request the original creditor to recall my debt?
Contact the original creditor and explain the situation. They are under no obligation to consider the request, but it is likely they will do so only if the borrower is ready to pay the debt in full.
This would include all late fees, interest, and most likely legal fees incurred in assigning the loan.
If you offer to pay in installments as per a traditional loan, the original creditor will most certainly reject your request for recall.
Be aware that when a debt has already been assigned to a collection agency, the original creditor will be most likely be reluctant for a recall because of the financial loss incurred.
The borrower is now considered a “bad payer” and it is typical that all other financial connections with the borrower will have been terminated.
This includes any transaction accounts, such as checking or savings.
If a borrower requests the defaulted debt be recalled, a creditor may be unwilling given the effort, time, and cost previously invested in trying to recover the loan.
How do I convince the original creditor to recall the debt?
The best incentive for the original creditor to recall your debt is to convince them that you are able to pay it in full.
Recalling the debt is primarily a benefit to the borrower if it works to improve their credit score.
The original creditor’s only benefit is to receive a paid balance for a debt long ago taken as a financial loss.
Convincing them to proceed as a matter of goodwill may take some time and faith.
As always, it is best to be honest about the situation. Be prepared to explain:
- Why the debt defaulted in the first place? Be real and genuine.
- What circumstances changed that now enables this debt to be paid?
- Why is this better for the borrower as opposed to working with the collections agency?
How will recalling the debt impact my credit score?
The assigned collection authority will be required by FCRA (Fair Credit Reporting Act) to remove the associated derogatory tradeline, thereby improving your credit score.
This will only occur if the original creditor revokes collection authority from the debt collector and agrees to recall the debt.
Bear in mind that payment would need to occur after the termination of any debt collector activity.
Otherwise, if payment were to be made to the collection authority before recall, the derogatory tradeline would remain, indicating a zero balance collection, and recall would no longer be possible.
What if I can’t pay the full amount with the original creditor?
If a borrower cannot pay the entire amount owed in order to recall the debt, they will most likely need to continue to work with the collection agency instead.
The agency collecting on behalf of the original creditor is tasked with recovering as much as possible from the borrower.
However, collection agencies are able to negotiate. They can and will come to an agreement with the borrower on an amount less than the original balance.
This will effectively “settle” the debt and will be considered “paid in full for less than original balance”.
When the borrower fulfills the agreement and final payment is made, the collection account is closed and the debt is reported with a zero balance to the credit bureaus.
Consider including a “pay to delete” clause in your agreement to add an obligation for the collection agency to remove the account from your credit report.
Is it better to have the original creditor recall the debt or negotiate with the collection agency?
It may not matter in the long run. The reality is cleaning up derogatory credit takes time and effort, often many months or years depending on the extent of damage.
Choosing to work with a collection agency instead of requesting the original creditor perform a recall may be less costly and produce similar results for most people.
Some borrowers however, may have specific circumstances that may benefit from a recall, so it is best to evaluate the situation based on cost versus gain, both personally and financially.