Setting expectations if your debt is sold to someone else.
If you’re like most Americans, you’ve probably never heard of a debt buyer. While debt buying is fairly new to the financial sector, it’s fast becoming a booming business. Knowing what a debt buyer is, what they do, and what this means if you have a delinquent debt purchased by a debt buyer can help you be more successful in understanding your rights as a debtor.
Fact: Collections and Credit Risk reports an estimated $158 billion in credit card debt is sold annually.
The information below can help you understand the debt buying industry and how it can impact you as a consumer. If you’re dealing with a harassing collector – debt buyer or not – we can help you connect with the right professionals to eliminate the debt and end the harassment. Call us or complete the form to the right to get started.
What is a Debt Buyer
A debt buyer is a company that buys delinquent debts for pennies on the dollar. When your creditor fails to collect on a delinquent account, selling the debt off to a debt buyer is one of the options they have to try and recoup at least some of the money that was lent to you. The debt buyer purchases a portfolio of outstanding or charge-off debts from a creditor or a collection agency that already failed to collect and gave up.
A debt buyer can then attempt to collect on the debt, contact a third party to attempt collection on their behalf, or sell off the debt again as part of another portfolio. As a result, your past-due debt can be bought and sold multiple times.
The cost to purchase your debt is usually between $0.04 and $0.14 for every dollar. So, if you have $10,000 in debt and the debt buyer purchases it for ten cents on the dollar, they pay $1,000 to buy your debt. You still owe the $10,000, but you would pay this money to the debt buyer instead of your creditor. Whatever money they collect beyond the $1,000 purchase price is their return on this high-risk investment.
How Debt Buying Works
Of course debt buyers do not buy one debt at a time. They buy large portfolios of delinquent debts from credit card issuers. Of the six main credit card issuers in the U.S., five of them use debt buying as a means to recoup money on unpaid debts. While they may receive less than five percent of the total amount owed, they at least recoup some money as they cut their losses.
Fact: Credit card debt accounts for 70% of the debt purchased by debt buyers
Debt buyers are taking a big risk when they purchase these portfolios or “strips”. Usually, they are a mixed bag of different levels of delinquent accounts. It’s a bit like buying a storage unit at an auction or a selection of merchandise off eBay. You may end up with one or two cards really worth something, but the rest are largely just junk.
Debt buyers are taking the risk with the assumption they can get a return on their investment with regard to at least some of the debts included in the strip. In some cases, they may simply resell the strip to another debt buyer or divvy it up into smaller strips for debt buyers with less capital.
What Happens When a Debt Goes to a Debt Buyer?
For you as a consumer, there is very little difference between dealing with a third-party collections company attempting to collect on behalf of a creditor and one collecting on behalf of a debt buyer. Many times, you won’t even know.
Even if you determine your debt was purchased by a debt buyer, you are still on the hook for the full amount owed – assuming they actually have all of the relevant information about the debt. Keep in mind that the real estate market collapse in 2009 brought to light a big problem with debt buyers, because they may not actually have everything required to legally collect from you.
As for being more or less willing to work with you, it really depends on the debt buyer and the situation. In some cases, a debt buyer is less willing to negotiate and work with you because all they want is to see if you’ll repay or they’ll move on – it basically a high risk investment and they don’t really care about the consumers involved. But in some cases, it can actually be better for you.
For example, let’s say you’ve fallen behind on your mortgage through a major national lender and it’s in default. You want to do a short sale, but the lender rejects it. However, instead of taking on the cost of the formal foreclosure process, the lender opts sell a regional portfolio to a local lender in your area. That new lender who bought your debt may be more willing to accept a short sale so you can get out of the mortgage and they can resell the home.
True or false: If a debt buyer doesn’t have complete information about the original debt, such as the correct account number and amount due, you don’t have to pay the debt back.
Tip: Always ask a third-party collector to verify the account information. If they can’t, then you’re not liable to pay them anything.