Just What Is Debt Buying Anyway?

Despite the fact that credit and debt are everywhere in our lives, forming some of the basic foundations of modern life – we simply could not exist in modern society without some forms of credit – many people do not understand debt buying.  But if you hold debts of any kind, you should be aware of what debt buying is and how the process could potentially affect you.

Debt buying is a process where a company purchases debts from another.  For example, say you owe a credit card company one thousand dollars.  The credit card company sells that debt to collection agencies or another entity, and the agency now own your debt.  You no longer owe the money to the credit card company, but to the agency.  Typically, creditors sell debts at a steep discount because they have been unable to collect on the debt and would prefer to get something rather than nothing.  On the other hand, companies purchase these debts because they will attempt to collect on thousands at a time – with the steep discount on the cost of the debt; even if only a small number of debts are cleared, they make a profit.

Debt Buying and You

You still owe the full amount when your debt is sold, even if you are unaware of the sale.  If attempts to collect on the debt are made by a new owner, there a few things every consumer should know:

• Check the details.  Collection agencies often launch thousands of collection attempts on purchased debt simultaneously, and numerous mistakes in paperwork – including an inability to prove ownership of the debt with origination paperwork – are common.  Often lawsuits concerning the debt can be stopped simply by pointing out paperwork errors.

• Always consult an attorney.  A lawsuit to collect on a debt, whether by the original creditor or a debt buyer, is still a lawsuit and you should behave accordingly.

Always remember: Debt buying changes the players in a debt situation, but not the rules.

Can You Liquidate for Credit Card Debt?

Credit card debt is one of the largest forms of debt that people are getting into.  Accessible usage and high interest rates make credit cards one of the easiest ways to sink into a financial crisis.  When this happens, the debtor has a major option to think about pertaining to bankruptcy.

Those that have credit card debt are eligible to file for Chapter 7 bankruptcy.   The filing of Chapter 7 bankruptcy is a contract that is making the debtor’s property available for liquidation.  This will relieve the debtor of their unsecured debts. 

What are unsecured debts?

Unsecured debts are debts that are not backed by some form of collateral.  Most debts, such as home mortgages and automobiles are secured.  This means that if the payments are not made, the company can relinquish the home or vehicle that is being used as collateral.  However, when it comes to Chapter 7, it’s the unsecured debts that are able to be relieved. 

What is the Chapter 7 process?

Once it has been established that a Chapter 7 bankruptcy petition is going to be filed, there is then a trustee that is assigned to oversee the ordeal.  It’s the trustee’s duty to separate exempt and non-exempt property.  From there, the creditors are notified that a Chapter 7 petition has been filed. 

Subsequently, all of the non-exempt property of the debtor is then liquidated.  The cash that is received from this liquidation is then passed out to pay the creditors.  If there is any remaining cash it may go to the claim’s company. 

Once the credit card companies have been paid, the debtor is then discharged of the preceding debts.  Credit card debt is a messy thing to get into, and it is definitely the slipperiest of slopes when it comes to debt.  Steer clear of this kind of debt, and keep track of your finances.  

Should you consider factoring or selling your debt as opposed to sending to third party collection firms?

Factoring is a financial transaction whereby a business or individual sells its account receivable (a.k.a. invoices) to a third party (e.g. collection agencies) at a discounted price, for it to be exchange into immediate money to finance the business. It is often misused synonymously with invoice discounting.  Factoring is the sale of receivables, whereas invoice discounting is borrowing where the receivable is used as collateral.  

Some major financial institutions sell their outstanding accounts both pre-charge off and post-charge off rather than have them worked in-house or sent to third part agencies or law firms. One factor is the volume of accounts and another is that they can obtain working capital upfront rather than waiting for funds to be collected over time. The advantage of this move is the invoices will be turned into money that can be use for the benefit of the company. The downside is collection agencies are known for their aggressiveness, so telephone harassment is a possibility. 

FDCPA (Fair Debt Collection Practices Act) only covers third party collections agencies not original creditors. However Federal Trade Commission has issued a Staff Opinion Letter which indicates that, even if a collection agency has purchase a debt, it is still covered under FDCPA as a third party debt collector. Hostile collections can stress out the customer and might think negatively about the company in which he/she original has debt. This might be harmful for future business opportunities.  

Aside to collections agencies, there are other debt buyers in the market. There are law firms, third party collection agencies and even individual entrepreneurs. There are a lot of individuals or companies that buy debts from individuals to large companies.