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What Happens When a Debt is Sold to A Collection Agency

by patriciahayden
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Debt Collection

If an account becomes delinquent, there’s a high chance that the lender will sell the debt to third party debt collectors. Here, lenders view the debt as a sunk cost and want to try and obtain some funds to help cover the loss. A debt collection agency comes in and purchases the delinquent account at a discounted rate. Moreover, once the purchase gets completed, the collection agency releases the proverbial hounds and other trends to collect from you. They’ll equally file a debt collection lawsuit.

Understanding how debt selling works is an important dynamic. As you stick to the blog, we’ll focus on the process of third party debt collectors purchasing debt.

Why sell debts?

Most creditors specialize in lending money and collecting it. However, they don’t have the right specialization when chasing debts past the due date or trying to find people who haven’t paid. These firms usually employ debt collection agencies or sell the debt to debt purchasers.

The lender won’t take immediate action when a consumer misses a payment. In such circumstances, they are more likely to cover a late fee per the contract. But, if the account officially becomes delinquent, the creditor will reach out to you to report the account to the credit bureaus.

You have the option to make payment by paying the fine. The creditor may agree not to report you to the credit bureau, and you may be off the hook. But, some debtors are not likely to pay for months. The account changes from delinquent to default, Here, the number of missed payments defaults depending on the debt type and the lender.

If the account reaches this stage, chances are high that the lender is likely to sell the account to a third party collections agency. In most cases, lenders and debt collectors work together on a commission basis. Here, the collector gets a percentage of each debt on successful collection.

If they don’t see any possibility that you’ll pay up soon, they can sell the account for a small percentage of what gets owed.

Where do agencies buy debt?

Most creditors have a list of debt collection agencies they use to pursue consumers with arrears. It’s more than easy for third party collections to purchase debt. Besides, debts are sold in large packages and are transferred to a collection agency. It’s common for proof and documentation of the debts to fall through the cracks, at least for some of the accounts involved.

When debt gets bought by a collection agency

A collection agency ensures they waste no time when trying to collect on defaulted and delinquent accounts. From the moment they purchase the debt, you can expect to start receiving calls, emails, letters, or even Facebook messages asking for payment.

In the United States, there are arrays of debt purchasers. In fact, Vital Solutions is one of the leading companies specializing in purchasing debts and devoting resources to try and collect unpaid debts from consumers across the country.

The practice of debt purchasing can be pretty lucrative, third party debt collectors can purchase debts for substantially less than their face value, but the debt purchaser is allowed to collect on the entire balance. For instance, if a lender sells a delinquent account with a $5000 balance, a debt purchaser might offer $500 to purchase the account. The debt purchaser can then turn around and seek to collect the full delinquent amount of $5000.

If debt gets paid, do they need to pay?

Even if the debt gets sold to a debt purchaser like a third party collections agency, you owe the purchaser money, but you will not owe the original lender anything. It is also worth noting that the debt purchaser must adhere to the same rules and regulations as the original creditor when attempting to collect the outstanding debt.

You also retain the same legal rights. For example, a debt collection company cannot arbitrarily or unilaterally spike the interest rate on a delinquent loan or account.

Notifying sold debts

The original creditor should notify us when they decide to sell the debt to a third party collections agency. You’re also likely to receive a letter from the debt purchaser explaining who they are and that you need to pay them now.

If debtors are receiving multiple phone calls, it’s essential to be proactive and take the steps necessary to protect their rights. As a result, it makes sense to utilize the resources and information available.

If the collectors notify you off buying the account, they will likely ask you to pay. From the time they first contact the debtors, they have five days to verify the debt. Whether or not a collector verifies the debt, the collection agencies may use the debt validation letter to request debt validation formally.

It is on the debt collector to prove that the debt is yours and is accurate. Once they verify the debt, there are only 30 days to dispute any incorrect details, including repayment dates, accrued interest, principal amount, etc.

If a debt collector fails to get the necessary documentation and evidence to validate a debt, they will cease any contact.

When debt gets sold to another company

Transfer of debt ownership does not change the fact that you owe the money. Once the creditor has legally sold the debt, you owe the amount of the debt to whoever purchased it. This is not to say that anyone claiming to be a debt collector is legitimate, nor should you take their word for it.

There have been many frauds when running collections; as a result, you must always verify any contact before you share information with third party debt collectors. Here, the consequence is dire if debtors fail to pay.

  • The debt collection services sue you
  • They report you to the credit bureaus
  • You have a difficult time accessing credit in the future
  • Prospective employers and landlords may not accept the applications
  • You lose the assets if the court issues a judgment

Hiring a debt collection firm

Debt collection agencies are now focussing on digital-first debt collection agencies. It is more about offering longer-term liquidation solutions for lenders. Debt collectors are able to work in conjunction with the existing consumer experience process. It’s more about strategizing with you to meet collection goals.

Debt collection teams remain a more active part of the consumer life cycle. The debt collection industry slowly begins to digitize, and more powerful debt collection solutions are becoming available. Digital debt collection tools ensure improved regulatory liquidation rates relative to traditional call-and-collect debt collection strategies.

Final Wrap

Selling the debt may offer immediate relief. In fact, many businesses provide excellent service and care. Regardless of which debt vendor you decide to use, be wary of potential bad actors and research to understand the best fit.

Its ideal consumers would be able to pay their bills in a timely manner. The lenders would not be able to pay their bills in a timely manner, and lenders would not have any debts to collect. However, unexpected hardships and changes in income put even the most financially-literate consumer in a different situation.

Debt is an essential part of any business, and it is imperative to partner with any company and is equally critical that businesses choose the right option for themselves and their consumers.

Get connected with the experts today to make your debt collection process smooth. We’re here for you!

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