If a Company Buys Your Debt, Do I Have to Pay?

When a debt you owe is sold by the original lender to a different company, it transfers your outstanding obligation to a new entity. While the party collecting payments changes, the underlying debt remains. This article clarifies the process of debt buying and explains your rights and responsibilities when faced with a debt owned by a new entity.

The Practice of Debt Buying

Debt buying is a well-established practice within the financial industry where companies purchase unpaid consumer debts from original creditors. These creditors, such as banks, hospitals, or credit card companies, often sell delinquent accounts to recover funds and reduce their administrative burden. They typically sell these debts for a fraction of their face value.

Creditors sell debt to remove it from their books, especially after it has been “charged off” as uncollectible, which also offers tax advantages. Debt buyers acquire these accounts and attempt to collect the full amount owed from consumers. This allows the original creditor to recoup a portion of the money they were owed.

Debt buying is a legal and regulated activity. These transactions are often for debts that are significantly past due, sometimes 180 days or more.

Your Debt Obligation After a Sale

The sale of a debt does not eliminate your obligation to repay it. When an original creditor sells your debt, they transfer their right to collect that debt to a debt buyer. The debt buyer legally owns the debt and is the entity to whom payment is now owed.

The transfer of debt is permissible without your consent, as most original loan agreements include provisions for assignment. The new owner acquires the same rights as the original creditor. The original terms and conditions of the debt remain in effect, and you are liable for the total amount, including any accrued fees or interest.

Verifying the Debt Buyer and Debt Details

When a debt buyer contacts you, confirm the legitimacy of the debt and the collector. The Fair Debt Collection Practices Act (FDCPA) grants you specific rights regarding debt collection. Debt collectors must provide “validation information” within five days of their initial communication, either in writing or electronically. This notice is often referred to as a debt validation letter.

This validation notice must include:
The amount of the debt.
The name of the creditor to whom the debt is currently owed.
A statement that the communication is from a debt collector.
Your name and mailing information.
The debt collector’s name and mailing address.
The account number associated with the debt, if available.
A detailed itemization of the current amount, reflecting interest, fees, payments, and credits since a specific date.

You have 30 days from receiving this validation notice to dispute the debt in writing. If you send a written request for validation within this 30-day period, the debt collector must cease all collection activities until they provide verification of the debt. Verification should include proof that you owe the debt, such as a copy of the original contract or account statements, and demonstrate the chain of ownership if the debt has been sold multiple times. Sending your request via certified mail with a return receipt provides proof of delivery.

Responding to a Validated Debt

Once a debt is verified, you have several options for addressing the obligation. One straightforward approach is to pay the debt in full. This resolves the debt and removes it from your financial record, potentially minimizing its impact on your credit report over time. Remit payment directly to the debt buyer, as they legally own the debt.

Another common option is to negotiate a settlement with the debt buyer. Debt buyers often acquire debts for a significantly reduced amount, making them more willing to accept less than the full balance as a settlement. You can propose a lump sum payment that is a percentage of the total debt, often starting with an offer around 25% to 30% of the outstanding balance. Get any agreed-upon settlement in writing before making a payment, ensuring it clearly states that the payment will satisfy the obligation.

If you believe the debt is not yours or contains inaccuracies, you retain the right to dispute it further. While the initial 30-day validation period is the most effective time to halt collection efforts, you can still dispute the debt later. This might involve sending a more detailed dispute letter, contacting credit reporting agencies if the debt appears on your credit report with errors, or seeking legal counsel if the issue remains unresolved.