A third of consumers with credit files had debts in collections last year


(Flickr user Orin Zebest)

About 77 million Americans have a debt in collections,  a new report finds.

That amounts to 35 percent of consumers with credit files or data reported to a major credit bureau, according to the study released Tuesday by the Urban Institute and Encore Capital Group's Consumer Credit Research Institute. "It’s a stunning number," said Caroline Ratcliffe, senior fellow at the Urban Institute and author of the report. "And it threads through nearly all communities."

The report analyzed 2013 credit data from TransUnion to calculate how many Americans were falling behind on their bills. It looked at how many people had non-mortgage bills, such as credit card bills, child support payments and medical bills, that are so past due that the account has since been closed and placed in collections.

Researchers relied on a random sample of 7 million people with data reported to the credit bureaus in 2013 to estimate what share of the 220 million Americans with credit files have debts in collection. About 22 million low-income adults who did not have credit files were not represented in the study.

This is the first time the Urban Institute calculated the collection figure, but Americans may have been struggling with debt for a while: Researchers noted that the 35 percent is basically unchanged from when the Federal Reserve studied the issue in 2004 and found that 36.5 percent of people with credit reports had debt in collections.

The debts sent to collections ranged from $25 on the low end and to more than $125,000 on the high end. Many consumers were burned for relatively small amounts -- about 10 percent of the debts were smaller than $125, Ratcliffe says. But the median debt, $1,350, is still pretty substantial, she adds.

Nevada was hit the hardest, with 47 percent of consumers with a credit file showing a debt in collections -- a mark researchers said may stem from the housing crisis when people struggling to keep up with their mortgage payments may have fallen behind on other financial obligations.


(Source: Urban Institute)

In 12 states, including the District of Columbia, more than 40 percent of residents with a credit file have a bill in collections. That includes Alabama, Arkansas, Florida, Georgia, Kentucky, Louisiana, Mississippi, New Mexico, North Carolina, South Carolina, Texas, and West Virginia.

On the opposite end, Minnesota, North Dakota, and South Dakota each have about 20 percent of residents with credit files who have reported debt in collections.

The phrase "debt collection" normally brings to mind dealing with harassing phone calls, repeated letters and other efforts from third parties attempting to collect the payment. But not all consumers get hassled: some people may not even learn they've been sent to collections until they check their credit reports, the study noted.

That doesn't mean the debts didn't cause any setbacks. Bills that are sent to collections can stay on a person's credit report for up to seven years, hurting a consumer's credit score and in turn hindering their chances of accessing loans, credit cards and other forms of borrowing. A bad credit score can also hurt a person's ability to land a job or their odds of getting approved for an apartment, Ratcliffe says. "This could impact you in multiple ways," she adds.


(Source: Urban Institute)

The study found that the share of people with debt past due, meaning they are at least 30 days late with payment on a non-mortgage debt, was much smaller: 1 in 20 people. That includes people who are late with credit card bills, student loan payments and auto loans.  The majority of those people, 79 percent, also had debt in collections.

However, because certain bills, such as medical bills and parking tickets, may not show up on a person's credit score until they are sent to collections, the total share of people falling behind on their bills may actually be much higher.

The report did not break down which types of bills were most likely to be sent to collections and researchers could not distinguish between debts that were sent to collection years ago and those that were added more recently.

Jonnelle Marte is a reporter covering personal finance. She was previously a writer for MarketWatch and the Wall Street Journal.
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