What Happens When Unpaid Rent Goes to Collections?

This guide covers what happens when tenants fall behind on rent, and landlords aren't getting paid. Learn about the formal collections process, the impact on tenants' credit, setting expectations early, and leveraging alternatives like payment plans.

By
Nichole Stohler
|
Last Updated
January 12, 2024
What Happens When Unpaid Rent Goes to Collections?

Having trouble with late or unpaid rent, and wondering what happens when unpaid rent goes to collections? This straight-talk guide is for both tenants behind on payments and landlords losing income.

We cover what happens when overdue rent gets escalated to collections — including potential credit impacts, required legal procedures, and critical prevention tactics. Additionally, we explore alternatives for resolving rent owed with alternatives like installment arrangements, communication, and community resources.

Whether you're a tenant unable to pay mounting rents or a landlord dealing with delinquent accounts, you'll find constructive next-step recommendations here. So, let's walk through getting ahead of issues before, during, and after accounts get sent to rent debt collectors.

Defining key terms

In order to gain a solid understanding of the issue of a tenant going to collections, we'll first need to define the key concepts involved in the process.

Tenant debt collection

Tenant debt collection refers to the process of pursuing and collecting unpaid rent or other outstanding debts from tenants.

When tenants fail to pay their rent on time, landlords or property managers try various methods to recover the owed amount. If these initial efforts prove unsuccessful, they may seek help from a collection agency.

The rent collection agency

A rent collection agency can be an option to help landlords recover unpaid rent from tenants. These agencies take over handling delinquent rent payments on behalf of the landlord or property manager.

The primary goal of a rent collection agency is to help the property owner recover at least some of the outstanding rent payments.

When can a landlord send a tenant to collections?

Landlords can send tenants to collections for unpaid rent or other debts like unpaid property damage costs. The timing for collections may vary with local laws around the eviction process. Typical scenarios where landlords or property managers involve collections agencies include:

  • After eviction: If you've followed the eviction process and the tenant still owes rent, you can send the debt to an agency to collect on this past due rent.
  • Abandonment without payment: If the tenant abandons the property but they still owe rent, you can send this debt to professional collection agents.
  • Move-out with outstanding balance: If your tenant ends tenancy still owing rent or fees, you can send this remaining balance to a collections agency.

Financial impacts for all parties

When tenants aren't paying what they committed to in the lease, getting debt collectors involved can hurt everyone financially. Landlords can miss out on income they're counting on and may need to pay attorney fees on top of that. Tenants deal with collection agency fees, damage to their credit score, and potential lawsuits if unpaid balances pile up.

Both landlords and tenants need to be clear that not settling debts directly can create long-term problems. If both parties understand that upfront, they can work to prevent issues or deal with them before things get out of hand.

Steps to send a tenant to collections

If a tenant still owes rent or other balances after the eviction process, sending the account to an unpaid rent collection agency may be an option. Should you decide to engage a collections agency to recover remaining unpaid debts, here are the steps:

Step 1: Review the lease agreement

Start by reviewing the lease agreement. Understand the terms and conditions, including any provisions related to rent payment, late fees, and consequences for non-payment.

Step 2. Notify the tenant of their outstanding debt

When the tenant falls behind on rent, promptly notify them about their outstanding debt. Send a written notice clearly stating the amount they owe, payment due date, and any applicable late fees or penalties. Offer the tenant a reasonable amount of time to resolve the issue.

Step 3. Hire and cooperate with the agency

If the tenant fails to respond or make satisfactory payment arrangements, this is when you might consider hiring a collection agency. Choose an agency experienced in rental debt collection who will handle the process professionally and within legal boundaries.

Share all relevant documentation and information with the debt collection agency. Provide copies of the lease agreement, payment records, and communication with the tenant regarding the outstanding debt. This enables the agency to proceed with its collection efforts.

Step 4. Attend the court hearing

In some cases, sending a tenant to collections may involve legal proceedings. If required, attend the court hearing to present your case and provide evidence of the tenant's unpaid rent. Follow all legal obligations and procedures throughout the process.

Choosing a professional agency

When embarking on the quest of choosing the right professional debt collection agency, consider the following factors:

  • Success rate of collecting the debt: What is the agency's track record and success rate in collecting debts? Look for agencies with a proven history of successfully recovering rental debts from tenants. You can often find this information through online reviews, referrals, or testimonials.
  • Fees charged by collection agency: How much will collection fees cost? Typically, collection agencies charge a percentage of the collected amount as their fee. Compare the rates and find an agency that offers reasonable fees without compromising on quality service.
  • Type of collection: What type of collection agency is best for your situation? Some agencies specialize in specific industries, while others may focus on consumer or commercial debts. Choose an agency experienced in handling rental debts who understands the landlord-tenant relationship's unique challenges and regulations.

Alternatives to using an agency

While hiring a collection agency is one approach you can take to recover overdue rent payments, there are other options landlords can consider that may be more effective for your situation:

Personally claim payments

Instead of outsourcing the debt collection process, landlords can attempt to claim payments from tenants personally. This involves direct communication with the tenant, either in person or through written correspondence, to discuss the unsettled debt and negotiate a repayment plan.

Landlords may be able to build rapport and trust, which can increase the likelihood of receiving the outstanding rent. It also allows tenants to express any concerns or hardships they may be facing, allowing for a more collaborative approach to resolving the issue.

Personally claiming payments may require more time and effort from landlords compared to using a collection agency, but it can help landlords collect a higher amount and reach a more amicable resolution.

Reporting to credit bureau's

Landlords have the option to report unpaid rent to credit bureaus. This sends a strong message to tenants about the importance of meeting their financial lease obligations. When landlords report delinquent debts, other property owners, lenders, and creditors will see these negative marks on a tenant's credit history.

Before resorting to credit bureau reporting, landlords should verify compliance with regulations like the Fair Credit Reporting Act (FCRA). The FCRA provides strict directives on how unpaid debts can be lawfully reported to safeguard consumer rights. Key requirements include:

  • Providing transparent notice of reporting intention.
  • Following dispute resolution procedures.
  • Correcting inaccurate information.

File a claim in small claims court

Landlords may choose to file a claim in small claims court. This option allows you to present your case before a judge and seek a legal judgment against the tenant.

Small claims court provides a structured and legal process for debt recovery, specifically for cases involving smaller amounts of money. The exact threshold for what is a small claims case varies by jurisdiction, so landlords need to be aware of their local procedures and limitations.

Consult with your local court system or seek legal advice to make sure you understand the specific procedures, filing deadlines, and potential outcomes.

How do you avoid using a rent collection agency?

Rent collection agencies can be costly and may not always be necessary. Steps you can take proactively to avoid needing their services include:

Thorough tenant screening

Use a detailed screening process for potential tenants before they move in. Conduct background checks, verify employment, and check references to make sure that you select reliable and responsible tenants. Look for tenants with a good payment history and stable financial backgrounds to minimize the risk of late or unpaid rent.

Clear rent collection policy

Establish a clear rent collection policy from the start. Outline your expectations regarding rent payments, including due dates, acceptable payment methods, and any late fees or penalties. Provide tenants with a written copy of the policy and make it easily accessible to them. This transparency helps set guidelines and reduces the likelihood of confusion or disputes.

Rent payment options

Make it convenient for tenants to pay their rent on time by offering various payment options. Consider accepting online payments, direct deposits, or automatic bank transfers. Multiple payment methods make it easier for tenants to comply with their payment obligations and reduce the chances of late or missed payments.

Open communication

Landlords should maintain open and proactive communication with their tenants. As such, encourage them to reach out if they anticipate that they'll struggle to pay rent. You can address any issues early on and work together to find solutions before they escalate by fostering a positive landlord-tenant relationship.

Rent reminders

It can be helpful to send out rent reminders a few days before the due date to make sure that tenants are aware of their upcoming payment obligations. This simple step can help prevent oversights and encourage timely payments.

What to avoid when collecting past-due rent

When collecting past-due rent, you should avoid certain actions that can be counterproductive or even illegal. Here are some key things to avoid:

  • Harassing your tenants: While dealing with tenants who have not paid their rent can be frustrating, it's important to maintain professionalism. Harassing or intimidating tenants is against the law and can result in legal consequences.
  • Going rogue: Make sure to follow proper legal channels and procedures when collecting delinquent rent. Taking matters into your own hands or resorting to self-help eviction measures by changing the locks can lead to potential legal repercussions and damage your reputation as a landlord.
  • Calling outside business hours: Respect boundaries and avoid contacting tenants outside of reasonable business hours. Calling tenants late at night or during weekends can be seen as intrusive and may strain the landlord-tenant relationship.
  • Giving unauthorized notices: Only provide notices that are either legally required or permitted under the lease agreement terms and local laws. Giving unauthorized or improper notices can undermine your case and potentially give tenants grounds to challenge eviction proceedings.
  • Showing up unannounced: Always give proper notice before visiting a tenant's rental unit. Showing up without notice infringes on a tenant's rights and can create unnecessary tension. Follow the legal guidelines for providing notice and respect the tenant's right to peacefully enjoy their home.
  • Abusing electronic communication: Electronic communication is convenient, but it's important to use it responsibly. Avoid bombarding tenants with excessive emails, text messages, or other forms of electronic communication that can be considered harassment.

Tenants rights when dealing with collections

Tenants facing collections for unpaid rent should be aware of their rights. There are two key areas to consider:

Legal protection

Tenants have protection under the Fair Debt Collection Practices Act (FDCPA). This federal law sets guidelines for collection of debts practices. It does not allow the debt collectors to engage in abusive, unfair, or deceptive practices when collecting debts.

This means tenants have the right to be treated respectfully and fairly during the collection process. Debt collectors must provide precise information about the debt, refrain from using harassment or threats, and respect the tenant's privacy.

Right to dispute debt

If tenants believe that the debt claimed by the landlord is inaccurate or unjust, they have the right to dispute it. Tenants can do this by requesting verification of the debt in writing within thirty days of receiving a collection notice.

The landlord or collection agency must provide evidence of the debt, such as a ledger or payment history. If the tenant still believes the debt is invalid, they can dispute it further by contacting consumer protection agencies or seeking legal advice.

Dealing with collection agencies

As a tenant who has fallen into rent debt, getting calls from collections can cause immense stress. Tenants should be aware of their rights during the collections process, including:

Negotiating or settling the debt

Tenants have the right to negotiate with collection agencies to dispute or settle the debt. They can provide evidence or documentation to support their claims and attempt to negotiate a reduced payment or a payment plan.

Stopping harassment and threats

During the debt collection process, collection agencies must not engage in harassment or make threats.

If tenants experience such behavior, they have the right to stop the harassment by sending a written request to the collection agency, demanding that they cease all communication except for necessary legal notices.

Legal assistance available for tenant defense

Tenants facing collections have access to legal assistance to help protect their rights. They can seek legal advice from tenant advocacy organizations, legal aid clinics, or private attorneys specializing in tenant defense.

These professionals can give guidance on navigating the collection process, understanding legal rights, and representing tenants in negotiations or court proceedings, if necessary.

Unpaid rent collection

When unpaid rent goes to collections, it sets off a sequence of events that can have significant consequences for both tenants and landlords. Missed payments may result in late fees and strained landlord-tenant relationships.

As the debt continues to accumulate, landlords often turn to collection agencies to recover the unpaid rent. Communication between landlords and tenants along with comprehensive lease agreements can help prevent unpaid rent from reaching collections.

Early intervention and flexible solutions can help mitigate the negative impact of financial difficulties, fostering a more positive and cooperative rental environment for both parties involved.

When can a landlord send you to collections? FAQs

How long does a landlord have to wait before sending unpaid rent to collections?

The specific timeframe for sending someone to collections for unpaid rent can vary depending on the rental agreement terms and local laws.

Generally, landlords may choose to send unpaid rent to collections after a certain period, typically 30 to 60 days of non-payment.

How long does an unpaid rent collection stay on my credit report?

An unpaid rent collection can stay on your credit report for a duration of up to seven years from the original delinquency date. After this period, your credit report should automatically remove it.

Can I rebuild my credit after an unpaid rent collection?

Yes, you can rebuild your credit.

Focus on making timely payments on all your other bills and debts, consider becoming an authorized user on another person's credit card, and keep your credit utilization low. Over time, responsible financial habits can help improve your credit score.

Nichole Stohler

Nichole co-founded Gateway Private Equity Group, with a history of investments in single-family and multi-family properties, and now a specialization in hotel real estate investments. She is also the creator of NicsGuide.com, a blog dedicated to real estate investing.

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