If you have ever been unable to keep up payments on your debt, you know that creditors make calls and send collection notices, and often for many months. Those constant reminders of your late payment can then suddenly stop. However, unpaid bills do not just disappear after your bank stops trying to collect. Your old bills can change hands – a lot. Any brief respite from debt collectors trying to contact you may just mean you will soon be hearing from someone else. And unfortunately, as companies exchange the right to collect from you, they can create a confusing maze.
Why Credit Card Lenders Sell Bad Debts
Virtually all credit card agreements have wording in them that allows banks to assign or sell their accounts. Most of us never give a thought to having consented to a bank using debt collectors, or later selling off legal rights to our debt, but we agree to this from the moment we accept the card and begin using it.
Banks want to qualify borrowers and make loans that return a profit. Put another way — lenders want to lend, not chase down collection accounts. Don’t get me wrong, banks do have internal collection protocols and policies. But the payment turnaround efforts banks make to get people back on track are typically limited (at least with unsecured debts like credit cards), to the first six months of delinquency.
Rules require banks to account for losses on their delinquent credit card loans no later than 180 days of nonpayment. Because of this, very few credit card issuers maintain internal collection efforts after six months. It is just not a good use of time, money and resources to chase down payments on defaulted unsecured loans that statistically are not going to pay. Because of this, banks will do one of three things after they stop trying to collect from you:
- After six months, banks will typically assign credit card debts out to a third-party debt collector (and retain ownership of the account).
- Place debts with collection attorneys (the bank still owns the debt).
- Sell unpaid accounts off to debt buyers (the bank no longer has a right to collect or be paid).
Banks do not have to sell unpaid credit card debts. But with their options so limited, and debt buyers willing to pay something for unpaid credit card debt, it provides a predictable (albeit small) recovery on debts that would otherwise be a total loss.
How to Know If Your Account Was Sold to a Debt Buyer
Your original lender can transfer or sell the legal rights to your debt. But you typically won’t know they did until after it has happened. It can be confusing to hear from some unknown company about how you should now pay them instead of the bank you owed. When this occurs, here are some things to be aware of:
- Some debt buyers have their own internal debt collectors. This type of debt buyer will call and write to you directly in order to collect on debts they now legally own.
- Some buyers have no internal debt collection infrastructure, and only use outside collection agencies and law firms to try and collect from you.
- Because debts can be resold over and over, you could wind up hearing from several different debt owners over time.
Having debts get sold off to another company is never ideal. If that happens, it is less confusing when you only need to deal with one company. But because items #2 and #3 are common, until you determine how you will resolve old debts, it is a good idea to stay organized. Rather than toss collection notices in the garbage, keep them organized in a folder. If you have several debts in collection, keep information about each account in different folders. Staying organized will help you throughout the life cycle of a debt.
Take these steps to further verify who legitimately owns your debt:
- Call your original creditor and ask about resolving your debt. If they sold your debt, ask for the name of the company that bought it.
- Review your credit report to see if a known debt buyer is reporting a collection account (your original creditor’s entry will often reflect they sold the account).
- Send a written request for debt validation to a debt buyer, or the collection agency working for one.
Calling your creditor directly will provide you with the quickest confirmation. But because your debt can be resold multiple times, be prepared to follow up with steps #2 and #3 if the debt buyer your creditor names does not match who is collecting today.