What Happens if My Debt is Sold to a Collections Agency?

If you don’t pay your bill on time, it goes to collections. Collections are typically handled by the creditor. However, your invoice or line of credit is a legal document representing a financial liability, and it can be sold to a third party. What happens if my debt is sold to a collections agency?

An Overview of the Debt Selling Process

When you are delinquent in paying a bill, the creditor can either assign the right to collect on the bill to a third party collector or outright sell it to the debt collector. In the latter case, they receive money from the debt collector and eliminate the hassle of collecting. When the debt is sold, the original delinquency date and any statute of limitations regarding its collection are not allowed to change. A collector that buys the debt may try to collect for a few months before selling it yet again, at a deeper discount, to another company.

What Happens When the Collection Agency Tries to Collect

As a debtor, you have the right to demand proof that the collection agency has the right to collect on the debt. This may be proof that they were assigned rights to collect on the debt or that they bought the debt from the creditor. Their documentation should show the original balance of the debt and the total balance they’re seeking to collect, since they may have tacked on legal fees and interest.

You also have the right to all of the information they have on the original debt like the issuer, the account number, mailing address for the original bill and dates of last activity. The collector may not have to provide a debt collections license number; read about debt collection licensing statutes by state. For example, the federal statute of limitations is one value but other states may have shorter statutes of limitations beyond which a creditor cannot collect.

Once you’ve verified that the debt collector has the right to collect on the debt, you’re free to negotiate a settlement or enter a payment plan. The company that bought the debt also gains the ability to sue. Note that once you make a payment of any sort, the statute of limitations for collecting restarts, and it is used by the new creditor as proof that you agree you owe it.

Why Creditors Sell Debt

Credit card companies regularly sell debt that they haven’t been able to collect to simply get it off their books and raise capital. Some companies routinely sell accounts once they’ve tried to collect for six months. In some cases, the company sells its credit card division because they’ve decided they don’t want to have a financial services division anymore. For example, the Discover credit card was originally issued by Sears. That division was later sold to the Dean Witter financial services firm.

Companies may sell outstanding debts for a variety of reasons and the new debt collector is legally obligated to provide you with all the pertinent information about the debt transfer. However, you’ll still retain all the same legal protections with this creditor as the old one.