A situation that can cause a particular degree of concern for people who are struggling to keep their heads above water is when you receive a letter regarding an outstanding debt from a company that they do not recognise with regards to a debt they do recognise.
What may have happened in this case is that a person’s debt has been sold by the original creditor to a debt purchaser, who then has the right to collect the debt from you instead of them.
Here is what you need to know about debt purchasing (1), what your rights are and what to do if your debt has been sold on.
Why Would Anyone Buy Your Debt?
To understand what to do about debt buyers, it is important to know why people buy debt in the first place, as well as why your creditor might have sold your debt.
If someone ends up in arrears and has failed to keep up with their repayments, a creditor is left with a choice; they can either continue to pursue the debt and escalate the situation further at their expense, they can hire a debt collection agency to collect the debt on their behalf, or they can sell it on and make money back on the debt.
If they genuinely believe they cannot get the money back, they may take the latter option, although that often means selling the debt at a fraction of what it is worth. Sometimes a debt is bought for less than ten pence on the pound.
This is the appeal and the business model of a debt buyer; they buy other people’s debt for cheap and reclaim the outstanding amount, either gradually through frequent repayments or with a lump sum payment.
What Debts Can Be Sold On?
Not every debt can be sold on, so the types of debts that would be bought include credit cards, personal loans, store cards, buy now pay later schemes, hire purchase agreements and leases.
Only regulated debts, which are debts covered by the Consumer Credit Act can be sold on, and a debtor must be informed when this is the case.
What Does It Mean For The Debt?
On paper, the only difference between a debt owed to the original creditor and to the debt buyer is who the payment is made out to, but in practice, there are a few differences to keep track of.
The terms of the original agreement stay as they are, so payments remain the same, interest rates remain the same and additional charges must be fair and based on the terms of the original agreement.
The main differences are found in the approach taken, which can vary depending on the agency’s policies itself and how much the debt cost them.
After all, if they paid £100 for £1000 worth of debt, they can still profit even if only half or a quarter of that is paid, although this is not information that a debtor has the right to know about.
If you are struggling financially at the moment or are uncertain about where you stand with a debt purchaser, get in touch today to find out more about the debt help we can provide.
References:
1: https://www.investopedia.com/terms/d/debt-buyer.asp
2: https://dictionary.cambridge.org/dictionary/english/arrears
3: https://www.legislation.gov.uk/ukpga/2006/14/contents
