Consumer Law Lingo: What is a Debt Buyer?

A “debt buyer” is a person or company (usually a company) that has purchased a debt for pennies on the dollar.

Wait a second.  Back up.  How does someone “buy” a debt?  Isn’t a debt where someone owes money?

Here’s how it works:  A credit card company (or other lender) offers you a credit card (or loan, etc.).  You accept the offer, and begin to use the credit card.  You use the credit card for gas.  Groceries.  Maybe a nice dinner here or there.  And then you lose your job or get sick and just can’t pay off the credit card bill.  You have now accrued what is referred to as debt.  And the company that issued you the credit card or loan has the legal right to attempt to collect the money that you owe to them (debt), because you entered into a contract with them (aka an agreement to repay borrowed funds).

Once you stop making payments altogether on your credit card or loan, the lender then closes your account pursuant to your agreement, and “writes off” (aka charges off) the debt for tax purposes.  Occasionally a lender will attempt to encourage you to make payments, but after awhile, the attempts cease.  After all, credit issuers are generally not in the business of collecting charged off or dead accounts.  They make their money from live accounts with active interest.  So now that the account is closed, how is the credit card company going to make their money back?

Brace yourself.  Are you ready for this answer?

THEY ARE GOING TO SELL, TO THE HIGHEST BIDDER, THE LEGAL RIGHT TO COLLECT THE DEBT THAT YOU ACCRUED.

WTF?

I know, but debt buying is a big industry, and the buying and selling of the legal right to collect a debt happens all of the time.

Is this legal?  Can my creditor sell my debt?  To answer this I have to call upon my years of law school and studies:  it depends.  Complicated answer, I know.  Simply put, it depends on whether your original contract permitted your creditor to assign its rights to another party.  Generally the contracts do.  Sometimes they don’t.  Regardless of whether your original creditor has the right to assign well, its rights, the assignment of your debt may work in your favor.

Sometimes, when creditors sell the right to collect a debt (and for reasons I have yet to understand), the paperwork regarding the debt is either “lost” or “destroyed.”  What does this mean?  This means that often, a debt buyer cannot prove the debt in a court of law.  If a debt buyer cannot prove a debt in a court of law the debtor wins.  Simple as that.  Granted, not all debt buyers choose to sue over a debt and just try to collect on it for decades (another practice you should be aware of – read my explanation here).   But those debt buyers that do attempt to sue generally back off the minute that the debtor hires an attorney.

Why?  Because the debt buyer knows that it CAN’T. PROVE. YOUR. DEBT.  And they don’t want to be sued for trying to collect a debt that they knew they couldn’t prove.

Moral of the story?  Protect your rights and hire a lawyer familiar with consumer law and debt defense.  (You know, an attorney like me.  Shameless plug).  It is always best to consult with an attorney to help you better understand (and protect) your rights.

Please note that this article is for informational purposes only and does not create an attorney-client relationship, nor does this article purport to give legal advice.  Everyone’s situation is different.  If you have legal questions, you should contact a licensed attorney.  Written by Shera E. Anderson, Esq. in Sunrise, Florida.

 

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