What Happens When a Debt Is Sold to a Collection Agency (2024)

Table of Contents
Why do creditors sell debts? Where do debt collection agencies buy debt? What happens when a debt is bought by a collection agency? If my debt was sold, do I have to pay it? Notice of Sold Debts If a debt is sold to another company, do I have to pay? Will a collection agency sue for $5000? Why are you responsible for a debt sold to a collection agency? What is SoloSuit? How to Answer a Summons for debt collection in all 50 states Guides on how to resolve debt with every debt collector Resolve your debt with your creditor Settle your medical debt Guides on arbitration Stop calls from debt collectors Federal debt collection laws can protect you Get debt relief in your state Debt collection laws in all 50 states Statute of limitations on debt state guides Check the status of your court case How to stop wage garnishment in your state Other wage garnishment resources How to settle a debt in your state How to settle with every debt collector Other debt settlement resources Personal loan and debt relief reviews How to repair and improve your credit score How to resolve student loan debt Civil law legal definitions Get answers to these FAQs on debt collection How-to debt guides Learn more with these additional debt resources FAQs

George Simons | December 06, 2023

What Happens When a Debt Is Sold to a Collection Agency (1)

Co-Founder of SoloSuit
George Simons, JD/MBA

George Simons is the co-founder and CEO of SoloSuit. He has helped Americans protect over $1 billion from predatory debt lawsuits. George graduated from BYU Law school in 2020 with a JD-MBA. In his spare time, George likes to cook, because he likes to eat.

Edited by Hannah Locklear

What Happens When a Debt Is Sold to a Collection Agency (2)

Editor at SoloSuit
Hannah Locklear, BA

Hannah Locklear is SoloSuit’s Marketing and Impact Manager. With an educational background in Linguistics, Spanish, and International Development from Brigham Young University, Hannah has also worked as a legal support specialist for several years.

Summary: Creditors often sell off old debts to debt collection agencies that purchase the debts for pennies on the dollar. If your debt was sold to a collection agency, you still owe it. If you get sued, you can use SoloSuit to respond in 15 minutes and win your lawsuit.

When an account or loan becomes delinquent, there are instances where a bank or other lender will opt to “sell” the delinquent account to a debt collection agency. This is often because the lender views the debt as a sunk cost and wants to try and obtain some funds to help cover the loss. This is where a debt collection company comes in and purchases the delinquent account at a discounted rate. Once the purchase is complete, the debt collection company releases the proverbial hounds to try and collect from you, or they file a debt collection lawsuit.

This article will answer frequently asked questions about the process of debt collectors purchasing debts.

Why do creditors sell debts?

Most creditors specialize in lending money and collecting it. They don't specialize in chasing debts that are past the due date or trying to find people who haven't paid. Instead, they usually employ the services of debt collection agencies or sell the debt to debt purchasers.

When you first miss a payment, the lender will not likely take immediate action. The delay is covered by late fees as stated in the contract you signed. However, your account officially becomes delinquent if you don't make any payments for 30 days or more. Now the creditor will likely reach out with threats of reporting your account to the credit bureaus.

If you were late by accident, you can apologize and make payments. The creditor may agree not to report you to the major credit bureaus and you may be off the hook.

However, if you don't pay and the account stays in arrears for months, the account changes from delinquent to default. The number of missed payments it takes for an account to default differs depending on the type of debt and the lender. For example, according to the Code of Federal Regulations, a Perkins student loan does not go into default status until 270 days have passed without payment.

When your account reaches this stage, there are high chances that the lender will cut their losses and sell the account to a third-party debt collector. Some lenders and debt collectors work together on a commission basis with the debt collector getting a percentage of each debt successfully collected. In most cases, however, if they don't see the possibility that you'll pay up soon, they sell your account for a small percentage of what is owed.

Let's take a look at an example.

Example: James owes ABC Credit Card $200. ABC decides to sell the account. The debt collection company buys James' account for $50. They are within their legal right to collect the total $200 and will try to do so. Remember, they are in the business for profit and it's doubtful that they will disclose how much they paid for the debt. Armed with the knowledge that they will make a profit even if you pay significantly less than the original debt, you can negotiate for a lower settlement. If you end up paying off half of the debt, the collection agency will still make a profit.


Where do debt collection agencies buy debt?

While most creditors have a list of debt collection agencies they use to pursue consumers with arrears, you will be surprised how easy it can be to buy debts. Websites such as Triton are a full-scale marketplace for buying and selling debts. The site also provides debt-collection tools. Debt collection agencies only need to create an account. Afterward, they can choose from the listed portfolios and buy.

As you can see from the Triton's inventory list, many debts are sold in large packages to debt buyers. When large debt packages are transferred to a collection agency, it's pretty common for proof and documentation of the debts to fall through the cracks, at least for some of the accounts involved. This is bad news for debt collectors, because if they don't keep track of all debt documentation, they won't be able to collect—no proof equals no payment.

What happens when a debt is bought by a collection agency?

A collection agency wastes no time in trying to collect on defaulted and delinquent accounts. From the moment they purchase your debt, you should expect to start receiving calls, emails, letters, or even Facebook messages asking you to pay.

There are an array of debt purchasers in the United States. In fact, there are some fairly large companies that specialize in purchasing debts and devoting resources to try and collect unpaid debts from consumers across the country.

See Also
How Long Can Debt Be Collected? | Credit.comWhat Happens to Unpaid Debt After 7 Years | ChaseHow to Avoid Resetting The Clock On Old Debt | BankrateStatute of limitations on debt collection by state

The practice of debt purchasing can be fairly lucrative since a debt collection company is often able to purchase debts for substantially less than their face value, but the debt purchaser is allowed to collect on the full balance. Debt collectors made a fortune in 2020, and there is no stopping them.

For example, if a lender is selling a delinquent account with a $5,000 balance, a debt purchaser might offer $500 to purchase the account. The debt purchaser can then turn around and seek to collect on the full delinquent amount of $5,000. This is where debt collection companies can generate large profits.

In another example, at Triton, a debt with a face value of $326,278.48 is sold to a debt collector for only $8,156.96.

If my debt was sold, do I have to pay it?

Yes. If your debt is sold to a debt purchaser like a debt collection agency, you will owe the purchaser money, but you will not owe the original lender anything. It is also worth noting that the debt purchaser is required to adhere to the same rules and regulations as the original creditor when attempting to collect on 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.

Notice of Sold Debts

Your original creditor should notify you when they decide to sell your debt to a third party. You'll also likely receive a letter from the purchaser of the debt explaining who they are and that you need to pay them now.

If you are receiving multiple phone calls and correspondence from a debt collection company, it is important to be proactive and take the steps necessary to protect your rights. This is why it makes sense to utilize the resources and information available through SoloSuit.

When the collector notifies you of buying your account, they will also likely ask you to pay. From the time they first contact you, they have five days to verify the debt.

Whether a collector verifies the debt or not, use the Debt Validation Letter to formally request a debt validation. This letter requests the collector show proof you owe the debt, requires them to stop contacting you for any other reason, and demands they report the debt as disputed. Many debt collectors will simply give up after receiving a Debt Validation Letter.

It's on the debt collector to prove that the debt is yours and is accurate. When they verify the debt, you have 30 days to dispute any incorrect details including repayment dates, accrued interest, principal amount, etc. If a debt collector doesn't have the necessary documentation and evidence to validate a debt, they will probably cease contacting you.

If a debt is sold to another company, do I have to pay?

Yes. Transfer of debt ownership does not change the fact that you owe the money. Once the creditor has legally sold the debt, you will owe the amount of the debt to whoever purchased it.

That is not to say that anyone claiming to be a debt collector is legitimate, nor should you take their word for it. There are many fraud cases in the debt collection industry, so you should always verify any contact before sharing information with alleged debt collectors.

The consequences can be dire if you refuse to pay the debt collection company that buys your debt.

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

Will a collection agency sue for $5000?

According to Investopedia, collection agencies prefer to sue for amounts more than $1,000. So, if you owe $5,000, a lawsuit is highly possible.

Even then, remember that lawsuits are costly and time consuming, which is not appealing to debt collectors. So, they will likely conduct thorough due diligence to ensure a court case is worth it. They prefer to get you to pay in another, more straightforward way. However, they will file a lawsuit if they believe you can pay but are refusing.

Negotiating with debt collectors can lead to a settlement. They may agree to let you pay only a percentage of your debt's face value if you offer a lump sum amount.

If you fail to settle, the company may sue you. According to comments published on Propublica, many consumers feel shocked and helpless when dealing with a debt collection lawsuit. But you can win against collection agencies in court. The first line of defense is to file a written Answer into the case. Send that to the court and the collector within the stated time (up to 35 days, depending on which state you live in), and you may shock them enough to make them give up the lawsuit.

Why are you responsible for a debt sold to a collection agency?

If you sign a contract with a creditor, you must honor your end of the bargain. They gave you the money, and you should pay. The same is true even if the debt is sold and belongs to someone else. However, you have every right to dispute the debt if details are lost during the transition from the original creditor to the debt collection agency.

Of course, unforeseen situations arise, and you may have difficulty making regular payments. If that happens, talk to your creditor before they sell the debt. Even after they sell debt, you can strike a deal with the collection agency to settle or work out an alternative repayment plan.

Buying debts is a daily occurrence. And if you're late on any of your accounts, you may have to deal with debt collection agencies. It's not the end of the world. SoloSuit has a blog dedicated to winning against debt collectors and helping consumers find debt relief in all 50 US states.

What is SoloSuit?

SoloSuit makes it easy to fight debt collectors.

You can use SoloSuit to respond to a debt lawsuit, to send letters to collectors, and even to settle a debt.

SoloSuit's Answer service is a step-by-step web-app that asks you all the necessary questions to complete your Answer. Upon completion, we'll have an attorney review your document and we'll file it for you.

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"First time getting sued by a debt collector and I was searching all over YouTube and ran across SoloSuit, so I decided to buy their services with their attorney reviewed documentation which cost extra but it was well worth it! SoloSuit sent the documentation to the parties and to the court which saved me time from having to go to court and in a few weeks the case got dismissed!" – James

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See Also
Statute Of Limitations On Debt In Georgia - Bournakis & Mitchell, P.C.

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>>Read the FastCompany article: Debt Lawsuits Are Complicated: This Website Makes Them Simpler To Navigate

What Happens When a Debt Is Sold to a Collection Agency (3)

>>Read the NPR story on SoloSuit. (We can help you in all 50 states.)

What Happens When a Debt Is Sold to a Collection Agency (4)

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What Happens When a Debt Is Sold to a Collection Agency (2024)

FAQs

What Happens When a Debt Is Sold to a Collection Agency? ›

The original creditor will either drop off entirely or show “sold or purchased by another company”. The terms you agreed to and the account balance are then transferred to the purchaser. Keep in mind that debt buyers do not expect you to pay this debt. Therefore, expect to be sued.

Discover More Details ›
What happens if my debt is sold to a collection agencies? ›

If your debt is sent to collections, the legal and financial consequences can be significant. If you don't pay what you owe, you risk damage to both your credit scores and your credit reports for up to seven years. If you're contacted by a debt collector, first confirm that you do in fact owe the debt.

Discover More ›
How long does a debt collector have to respond to an answer? ›

There's no set time limit in which collectors must respond to a debt verification request you send them. However, they're required to send a debt validation letter within five days of first contacting you.

Discover More ›
Can you dispute an account that was sold to a collection agency? ›

Can you dispute a debt if it was sold to a collection agency? Your rights are the same as if you were dealing with the original creditor. If you do not believe you should pay the debt, for example, if a debt is stature barred or prescribed, then you can dispute the debt.

See Details ›
Do I have to pay a debt that has been sold? ›

Unpaid debt doesn't go away. Until the debt is either paid or forgiven, you still owe the money. This is true even if it's a credit card debt that is sold to a collection agency and even if you think it's unfair.

Read On ›
How long before a debt becomes uncollectible? ›

4 years

Read More ›
What happens if you never answer debt collectors? ›

Not responding to a properly served lawsuit – even if you're unsure whether you owe the debt – can result in the court issuing a judgment against you, which could limit your ability to dispute the debt, even if it's already been paid or you don't owe it.

Know More ›
How do you outsmart a debt collector? ›

6 Ways to Deal With Debt Collectors
  1. Check Your Credit Report. ...
  2. Make Sure the Debt Is Valid. ...
  3. Know the Statute of Limitations. ...
  4. Consider Negotiating. ...
  5. Try to Make the Payments You Owe. ...
  6. Send a Cease and Desist Letter.
Sep 3, 2022

Read The Full Story ›
What proof do debt collectors have to provide? ›

At a minimum, it must produce: A copy of the original written agreement between the parties, such as the loan note or credit card agreement, preferably signed by you. If the account has been sold to another creditor, that creditor must prove that it has the right to sue to collect the debt.

Discover More Details ›
What not to say when a debt collector calls? ›

If a debt collector tries to collect a time-barred debt from you, the most important thing is not to say or do anything that in any way admits that you owe the debt. By acknowledging the debt or even making even a token payment, you might inadvertently restart the limitations period.

Tell Me More ›

What is the 609 loophole? ›

Specifically, section 609 of the FCRA gives you the authority to request detailed information about items on your credit report. If the credit reporting agencies can't substantiate a claim on your credit report, they must remove it or correct it.

Get More Info ›
Will a debt collector sue me for $500? ›

What is the minimum amount a debt collector will sue for? Most debt collectors won't sue for less than $500. However, any unpaid debt can potentially result in collections legal action regardless of amount owed if the collector determines suing worthwhile.

Read On ›
What happens if I pay the original creditor instead collection? ›

Generally, paying the original creditor rather than a debt collector is better. The creditor has more discretion and flexibility in negotiating payment terms with you. And because that company might see you as a former and possibly future customer, it might be more willing to offer you a deal.

Learn More ›
How likely is it that a collection agency will sue? ›

How likely is it that you will be sued for a debt? According to one Consumer Financial Protection Bureau report, 1 in 7 — or about 15% — of consumers contacted about a debt in collections were sued. But the likelihood of a debt collection lawsuit depends on several factors.

Discover More ›
Will debt collectors give up? ›

If the debt is not collected, then the debt collector does not make money. In many cases, although you would think that debt collectors would eventually give up, they are known to be relentless. Debt collectors will push you until they get paid, and use sneaky tactics as well.

Tell Me More ›
Can a creditor still collect after issuing a 1099 C? ›

If a creditor continues to attempt to collect the debt after you receive a 1099-C, the debt may not have been canceled and you may not have income from a canceled debt. Verify your specific situation with the creditor.

Learn More ›
How do I get rid of debt sold to a collection agency? ›

If you can afford to pay a large lump sum, you can ask that the collection agency delete the debt from your credit report. If the debt collector doesn't agree, you can request that they mark it as “paid in full.”

Get More Info Here ›
How long can a bad debt be sold to a collection agency? ›

Typically, after 10 years of not paying debt, the statute of limitations will have passed. This means that while you technically still owe the debt, debt collectors may try to collect it, but they typically cannot pursue legal action against you.

Keep Reading ›
How do I get out of collections without paying? ›

You cannot remove collections from your credit report without paying if the information is accurate, but a collection account will fall off your credit report after 7 years whether you pay the balance or not.

Learn More ›
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