Do I Have to Pay a Debt If It Has Been Sold?

If you owe money on a debt like a loan or credit card you may wonder if you’re still required to pay it if the original creditor sells the debt to a third party collector. This is a common situation that many consumers face. The short answer is yes you are still legally obligated to pay the debt even if it’s been sold. However, the details can be confusing, so let’s break it down.

How Debt Sales Work

When you take out a loan, open a credit card, or make any other type of credit agreement, you are entering into a contract with the lender or creditor You agree to repay the money you borrow under the specified terms.

Creditors will often sell your debt to a third party collector, usually for very little money, if you miss payments or stop paying all together. This is called debt sale or charge-off. The creditor no longer has to pay the debt and gets some cash from the collector. After that, the debt collector can try to get the full amount back from you as the debtor.

For example, you owe $10,000 on a credit card with Bank X. You stop making payments, so Bank X charges off the debt and sells it to Collection Agency Y for $2,000. You now owe the $10,000 to Collection Agency Y rather than Bank X. The original debt remains valid and enforceable.

Why Creditors Sell Debt

There are a few key reasons why creditors sell off defaulted debts

• Receive immediate cash flow – By selling to a collector, the creditor recoups a portion of the bad debt immediately as cash instead of waiting to see if the consumer will eventually repay. This improves their cash flow.

• Offload collection costs – Collecting on severely delinquent accounts takes considerable time and resources. Creditors would rather focus on their core lending business than debt collection. Selling the accounts removes this cost burden.

• Remove bad debts from books—Getting the loans that aren’t being paid back off makes the creditors look like they have more money. This keeps them from having to write off the whole bad debt as a loss.

• Improve recovery rates – Collectors specialize in pursuing debts aggressively. They might have a better chance of getting paid than the first creditor.

What Happens When Debt is Sold?

Here’s what you can expect if your debt is sold to a collector:

• You’ll receive a notice in the mail informing you that your account has been sold or transferred and providing the collector’s contact information.

• Your credit report will show the original creditor’s name, but payments will now go to the collector.

• The collector will start contacting you demanding repayment of the full original balance. They may offer settlement options for a portion of the amount.

• You are still protected by federal and state consumer protection laws regulating debt collection activities.

• You are still responsible for paying back the full amount according to the original credit terms.

• Interest and fees cannot be added by the collector unless specifically allowed in the original contract.

• The collector can continue reporting the debt to the credit bureaus if you don’t pay.

Your Rights and Obligations

Importantly, when your debt gets sold, you keep all the same rights and responsibilities as when you were dealing with the original creditor:

• You are still legally obligated to repay the debt under the original terms. Selling the debt does not erase what you owe.

• You have the right to request debt validation from the collector, requiring them to prove you actually owe the amount claimed.

• You can still dispute errors on your credit reports or directly with the collector.

• If you believe the debt is too old to be legally enforceable (time-barred), you can assert that defense against collection efforts.

• Any claims about the debt being “forgiven” or no longer owed just because it was sold are false. You still owe the money.

• If you negotiate a payoff settlement for less than the full balance, get the details in writing and keep records before paying.

Strategies for Dealing with Sold Debt

If you are contacted about sold debt, here are some tips:

• Verify it’s a legitimate collector and debt before paying anything. Confirm the original creditor’s name and account details.

• Ask for validation to ensure the amount is accurate. Collectors sometimes try to collect more than legally owed.

• Negotiate a settlement if possible. Collectors often accept less than the full balance as payment in full. Get any deal in writing.

• Consult a credit counselor if you’re struggling with debt payments. They can help manage collectors and create a repayment plan.

• Know your rights against harassment and false threats. Report illegal collection practices.

• Prioritize essentials like housing, food, utilities first if funds are tight. Don’t let collectors pressure you into skimping on necessities.

• Consider bankruptcy if your debts are totally unmanageable. This can eliminate certain debts entirely in some cases.

The bottom line is that while debt sales can feel threatening, you remain in control of the situation. Don’t panic, know your rights, and take proactive steps to reach a resolution. With the right approach, you can take on sold debt while protecting your overall financial health.