Debt Sold To Debt Collectors
Defaulted debt: will my debt be sold to a debt collector?
If you’re in debt and you’re struggling to keep up with your payments, you might be worrying about the day your debt falls into the hands of a Debt Collector. The world of debt collection has a lot of unknowns, which can feel intimidating if you find yourself in this position. A lot of people don’t realise that Debt Collectors buy debt, but they actually do and millions of pounds worth.
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Many people's biggest question after they have defaulted, is likely to be, when will my debt end up with a Debt Collector? The truth is, it’s not something that someone will take the time to explain to you. The process just happens, out of the blue, you’ll receive a system generated letter from a Debt Collector notifying you that they now own your debt. Then the chasing begins.
There is some information that is useful to know, particularly about how the process of selling debt works and the deciding factors that may come into play. We can’t tell you if or when your debt will be sold to a Debt Collector, but hopefully we can share knowledge that will help you understand what may influence a sale.
Who owns these Debt Collection Agencies?
It might seem like there are a lot of Debt Collection Agencies in the UK, but most - if not all - are owned by a handful of multi-billion-dollar organisations heavily involved in global debt buying. In addition to Debt Collection Agencies who act on behalf of Creditors, there are Debt Collection Agencies who purchase debts and are often huge organisations like private equity firms.
If sold, your debt could end up being owned by a completely random U.S. company like PRA Group. But what exactly is a Debt Collection Agency?
What is a Debt Collection Agency (DCA)?
Putting it simply, Debt Collection Agencies are businesses that buy up debt, or “act on behalf” of the creditors with a view to making a profit from the debts they collect. However, in the scenario that the Debt Collection Agency works on behalf of the creditor, it’s still the creditor that owns the debt.
It’s a little technical but for those of you who are interested, here’s a breakdown of how these organisations can make a huge profit from their work:
Some debt collection agencies specialise in buying debt portfolios made up of 100’s of millions of pounds worth of defaulted debt. They buy them at somewhere between 3-10% of the actual debt value. So, for example, if they bought for 3%, they would pay 3p for every £1 of debt owed. Let’s say a Creditor has a debt portfolio of £500,000, and the Debt Collection Agency is paying 3% for that portfolio, they would purchase it for £15,000, with a view to recovering the full £500,000 or at least substantially more than what they paid for it.
What exactly is ‘defaulted debt’ and how does defaulted debt come about?
Creditors and Defaulted Debt.
If you simply can’t pay your agreed payments toward your Unsecured Debts - things like your loans, credit cards, overdrafts or store cards - eventually your account will go into something called Default.
This means that your debt has become a bad debt to the creditor, which can be seen as a loss to them.
It’s at this point your account gets moved to the Internal Recoveries Department, often an automated system that functions via a system of workflows. These systems automatically manage the recovery of your debt by sending auto-generated letters and assessing the viability for sale to a Debt Collector.
When can a Defaulted Debt be sold to a Debt Collector?
The process generally kickstarts when you’re struggling financially, and you get in touch with the Creditor because you can’t afford to pay the agreed amounts towards your debt. It’s probably best to use an example to explain this….
Let’s say you contact your creditor to let them know you can only pay £1 per month as your circumstances have changed, and are experiencing financial hardship. You would like to keep this arrangement until your financial situation improves. Technically they have to accept your offer under section 7.3.5 of the F.C.A Handbook. If your debt is £10,000 and you’re only paying £1 per month, every month, it’s going to take the Creditor a long time to recover the debt. They have no real chance of getting their money back at that rate, so they can choose the next best thing. They can cash in on the debt by selling it on. They sell it to a Debt Purchaser who has the time and resources to try different tactics to recover the money from you.
However, it’s important to understand that your debt is one of hundreds, probably thousands of defaulted debts. The Creditor's recovery department doesn’t sit there cold calling Debt Collectors to sell your individual debt – mainly because the process is computerised – but also due to a number of other factors that come into play if and when debt is sold. We say if because there is a chance your debt may never get sold!
You see, creditors periodically make portfolios available for purchase when they feel it’s time to cut their losses and cash in on a chunk of their debt. There is no set time for this. It’s just when they have a portfolio large enough to sell. If your debt is at the recovery stage, you might think this is the point at which your debt will be sold. It’s a fair assumption to make but not necessarily true. It really depends on what the banks internal systems say. Yep, it’s all about those systems. The system decides whether your debt is financially better to be sold or to remain with the creditor.
What factors affect my debt being sold?
Well, the reality is, it could be a combination of things like the age of the debt, the value and how much the bank receives from you each month, as well as your payment history. For example, a £50,000 debt that is six years old, with no successful contact or payment history may have significantly less value than a £10,000 debt that is six months old, receiving regular monthly payments of £50.
If you’ve been paying £1 per month for a £20,000 debt, you’re only paying off £12 per year. If the bank could sell it now for 3% of the value, they’d get £600 towards the debt. On the current payment plan it would take 50 years to make that money, so it makes business sense for the creditor to include it in their upcoming debt portfolio. However, if you’re paying £50 per month then it may make sense for them to keep hold of the debt. Whereas, if you’ve been paying £1 per month for six years, it’s likely that the debt sale value will be so low that it may not be worth selling. In the last scenario, the creditor might decide to hold onto that debt until it has a large enough portfolio of similar debts to sell all at once.
If in the eventuality your debt is sold, you will be notified by the new owner and the previous creditor. Please do not confuse your debt being sold, with someone collecting on behalf of the bank because this does happen.
Statute Barred debt.
There are also some categories of debts that are Statute Barred, that may sell for peanuts as they cannot be pursued via the court system. In this scenario, a CCJ can’t be issued if you continue not to pay the debt, unless you trigger it. Read more about Statute Barred debt here.
It's been years and my debt still hasn't been sold.
Finally, there is a chance that your debt simply doesn’t fit the criteria for sale and so it’s never sold. As you can tell it’s not an exact science. The sale criteria will vary from creditor to creditor, from portfolio to portfolio. It’s pretty much impossible for you to know if, or when your debt will be sold to a Debt Collector, but you can get an idea of how it works with the examples above.
Don't forget to read The Real Debt Guy's final thoughts below!