For those who are in financial difficulty, the scenario is a familiar one. Sitting at the table, bills spread in front of you – trying to determine which of them gets paid this month. If finances are tight, many of our bills may go unpaid for a few months or more. When a debt is classified as “past due,” you are likely on a creditor’s call list. They may constantly be reaching out to you, trying to collect payment. These calls are often an exercise in futility. After all, if you had the money, you would be happy to pay your bill.
When a debt goes seriously past due, many creditors eventually cut their losses and sell the debt to a collection agency. Although your creditor has now walked away from the situation, your saga continues. The collection agency now owns your debt and will be working to collect as much as possible on that debt.
Debts Are Sold to Another Company
According to the Consumer Credit Act, debts can legally be sold to an outside company at any time after the debtor fails to keep up on payments. The transfer of past due bills and obligations is a standard part of the comprehensive debt collection process. The sale of these debts applies to a diverse range of debts, including overdrafts, credit cards, and loans.
Creditors structure their business around their primary role of lending money and collecting it back with interest. Their business model is not built to function optimally when an activity falls outside their scope of business – such as dedicating resources to collect an overdue debt. Most creditors do not focus on tracking down debts that are not being paid on time or chasing those who aren’t paying their debt. Instead of managing collections while focusing on lending, many creditors either subcontract the debt collection or sell past-due obligations to those who purchase debt.
When a collection agency purchases and assumes your debt, they agree to track down debt on their own behalf rather than working for other companies. Creditors benefit from offloading the debt because it eliminates the need to allocate time, resources, or money to collect those debts. When a debt is sold, the original lender receives a portion of the debt in return – which is better than receiving nothing from someone who is not paying.
Why Do Collection Agencies Purchase Debt?
A debt purchaser buys debt at less than face value but retains the right to collect the total balance owed, creating a possible profit margin.
When a debt is sold, the obligation to pay the debt balance is now owed to the debt purchaser, not the original lender. The collection agency that now owns the debt is liable to the same rules and regulations as other creditors – and the account holder maintains their legal rights as well.
A debt purchaser cannot add interest or charges to your original debt. The only exception to this rule is if your original loan agreement gave the creditor the right to raise rates within specific parameters.
When a debt is sold, the original creditor should let the debtor know about the situation. The purchaser of the debt should also send a letter explaining who they are and how to pay them for the remaining debt. This introductory letter should include the debt purchaser’s name and the original account number so that you can identify the debt to which they are referring. If you aren’t sure what debt they are referencing, contact them and request additional information as needed. Remember – your rights remain intact even though the loan has a new owner.
You can challenge the debt if you don’t believe you are legally obligated to pay, such as if the courts included the debt in a recent bankruptcy discharge.
If you have additional questions about negotiating with debt purchasers or calling off a collection agency, we can help. Do you need a fresh start through personal bankruptcy? Call the Sarasota law offices of Richard V. Ellis, and let’s talk about it.