If you've heard of credit card debt being bought and sold, you may wonder if it affects you. Banks sell debt that has failed to pay for a specific period of time. The bank charges off the loss, and the new owners can try to collect on the debt. By federal law, installment loans must be charged off after 120 days of delinquency, and revolving accounts after 180 days of delinquency.
Who Buys Credit Card Debt
Someone who buys old credit card debt intends to try to collect the amount owed. Because buyers purchase this debt at a significant discount - often pennies on the dollar - collecting only some of the accounts can still be highly profitable. The new owners will often offer to settle for less than the full amount because anything they can recoup helps them profit on their investment.
A lot of people and companies buy credit card debt. These organizations range from very reputable collections firms to shady, almost underworld figures looking to make a quick buck. The New York Times published an investigative piece that put it this way: "A gamut of players - including debt buyers, collectors, brokers, street hustlers, and criminals - all work together, and against one another, to recoup every penny on every dollar."
As a consumer, you may wonder if you can buy your own debt for these low prices. Then, of course, you wouldn't have to worry about collections or lawsuits. Unfortunately, consumers are not included in the bidding process. In addition, debts are not sold individually. Instead, they are sold in large lots that include thousands of debt records.
Do You Still Owe the Debt?
Many debtors wonder why they have to pay the debt if the original creditor has already charged it off as a loss. According to the law, you still owe on the account, even if someone new owns it. Debt is still owed even if the debt information has been bought and sold several times.
After a certain number of years, which varies depending on your state and type of debt, debt becomes "time-barred." The FTC defines time-barred debt as debt that has passed the statute of limitations so a collector can no longer sue you for the money. You still owe the debt, and a collector can still call you about it, but they cannot take you to court to collect.
The statute of limitations in most states is between three and six years, although it may be as long as 15 years. Keep in mind that despite this limit on lawsuits, an unpaid credit account will generally affect your credit report for seven years.
If you are sued for time-barred debt, do not ignore the lawsuit. You may be found in default, which can cause the clock to reset on the statute of limitations. Instead, contact a legal professional and defend yourself appropriately.
Protect Your Rights During Debt Collection
As a debtor, it can be difficult to know if the people calling you to collect on old debts legitimately own the account or not. It's important to assert your rights and refuse to give in to illegal collection tactics.
It's easy for debt collection organizations to take advantage of a consumer that doesn't understand his or her rights regarding debts. The Fair Debt Collection Practices Act (FDCPA) helps protect you from predatory practices. Protections in the FDCPA include, but are not limited to:
- Time limits on when you can be called
- Restrictions against abusive language, profanity, abuse, harassment, and annoyance
- Collectors must identify themselves and provide the name and address of the original creditor
- Collectors must advise you of your right to dispute debt
- Verification of debt must be provided if you request it
To avoid being scammed or paying someone who is not related to your debt, you should always ask a collector for verification. Get written proof of who owns the debt, the amount of debt, and that the claim is not time-barred. If you agree to a settlement, get a signed letter from the collector before making a payment.
How to Handle Old Debt
When someone calls to collect on an old debt, you have several options. Each has pros and cons, and your best option will have a lot to do with how old the debt is.
- If you choose not to pay the debt, it may impact your credit report. You may also be sued for the balance of the debt if it is not time-barred.
- If you make a partial payment, you will 'revive' the debt and the statute of limitations on lawsuits will start over. If you choose to pay off the debt, you may be able to do so at a reduced amount.
- If you choose to make payments on old debt, always make sure you are paying the right organization.
Until you have verification of your debt in hand, do not set up payments or give your bank information to a collector.
What to Do if Your Debt Is Sold
You may not find out your debt has been sold until a new collector contacts you. Verify the debt in writing first. Remember that you have rights regarding the collection process. There are limits to how long you can be sued for old debt, but that can change if payments are made. Of course, if you have any doubt about your situation, it's best to contact a legal professional. You don't have to put up with unlawful bullying and intimidation.