By Ryan C. Wood
This is one of the most common questions we are asked by potential bankruptcy clients. Once financial problems make paying credit card companies each month the likelihood of the debt being sold or transferred to a debt collector or collection agency are high. So what do debt collectors pay for debts?
In January 2013 the Federal Trade Commission issued a report about the collection agency industry. The FTC is trying to obtain information about the process of buying and selling debt. The report is entitled “The Structure and Practices of the Debt Buying Industry.” The average amount paid for debts by collection agencies is $0.04 per dollar of debt. So if you had a debt of $15,000 owed on a credit card and it was purchased by a debt collector, the debt collector would pay on average $600.00. The older the debt the less was paid and conversely the new the debt the more that was paid. Keep in mind that the statute of limitations for breach of contract is four years in California. Please consult your state’s statute of limitations for breach of contract claims.
The FTC further says in the report that collections agencies typically received the information required to validate a debt pursuant to the FDCPA. Debt collectors also received or were likely to receive the name of the original creditor which a consumer is entitled to know upon request pursuant to The Fair Debt Collection Practices Act.
According to the study if a debt was disputed as not owed only 2.9% of these disputed debts were then resold to another collector.
One of the most interesting sections of the report discusses time-barred debts. What is a time-barred debt? It is a debt that the statute of limitations for enforcement has run out. This means that you cannot be sued to be forced to pay the debt and the debt is therefore unenforceable. So this begs the question of why does a collection agency attempt to collect on a time-barred debt? Unfortunately most collection agencies do not disclose that they do not have the right to sue and they try and get you to make a partial payment. Once you make the partial payment this revives the statute of limitations on the whole debt. The FTC says that a debt collector should disclose that they do not have the right to sue and that any partial payment will revive the statute of limitations. I have never heard of a collection agency making honest disclosure such as this. I have heard story after story from clients and potential clients about misleading or false statements to fool people into making payments on defaulted debts.