If you have debt which is in default,the creditor may sell your debt to a debt buyer. A debt buyer is not the same as a collection agency. Understanding what debt buyers are and how they operate can help you negotiate with the debt buyer or figure out a strategy to deal with your debt.
As the name implies, a debt buyer is a company that purchases debts from original creditors. The original creditor -- the company you incurred the debt from, such as Discover, American Express, Target, or the like -- will usually not sell your debt to a debt buyer until its been in default for some time.
Debt buyers often purchase thousands of debts in bulk sales from original creditors. They usually buy them for pennies on the dollar. They make money by purchasing the debts cheaply, and then trying to collect on them. Even if the debt buyer collects only a fraction of the debts it buys, it still makes a profit. This is why you often get the best settlement offer once a debt buyer has purchased the debt.
Unlike a collection agency, which only tries to collect as a service to the original creditor, the debt buyer actually owns the debt. This means the original creditor will no longer have anything to do with the debt. The debt buyer makes all the decisions about your debt, including choosing what settlements to offer and whether to sue. Some debt buyers sue regularly, while some never sue. In fact, some debt buyers are law firms or owned by law firms.
Because debt buyers purchase debts in bulk for pennies on the dollar, they often do little or nothing to ensure the validity of the debts they are buying. To make matters worse, creditors often sell the debts “as is,” meaning that they do not guarantee the accuracy of the debts sold. This results in a number of problems for consumers.
The easiest way to know if your debt has been purchased by a debt buyer is to read the letters you receive. These will often state that they have purchased the debt or now own the debt.
You can also check your credit report. If you see a debt with your original creditor that is marked as “charged off” or “paid in full,” and then see another company with a debt in the same amount, but with a more recent date, that company is likely a debt buyer.