What Happens When a Credit Card Company Sells Your Debt?
Credit card debt sold? Understand the process, your consumer rights, and how to manage interactions with debt buyers.
When a credit card company sells your debt, it marks a significant shift in the collection process that can affect your financial standing. This is a common strategy for original creditors to recover capital from severely delinquent accounts, typically after 90 to 180 days of non-payment. Selling debt allows them to clear their books and avoid internal collection costs.
Understanding Debt Sale
A debt sale occurs when an original creditor transfers ownership of an overdue debt to a third-party debt buyer. The debt buyer now legally owns the debt and has the right to collect it. Credit card companies often sell these delinquent accounts for a fraction of the outstanding balance.
Original creditors sell debt to minimize losses on accounts no longer profitable to pursue internally. While ownership changes, the fundamental terms of the original debt generally remain the same. The debt buyer assumes the role of the creditor, with the ability to pursue collection efforts.
Once a debt is sold, the original creditor’s account may be marked as “closed” or “transferred” on your credit report, and a new entry for the debt buyer may appear. The debt buyer will then attempt to collect the full amount owed.
Your Rights and Obligations
When your credit card debt is sold, your obligation to repay transfers to the debt buyer. Your rights are protected under federal law, primarily the Fair Debt Collection Practices Act (FDCPA). This law sets rules for what debt collectors can and cannot do while attempting to collect consumer debts.
Under the FDCPA, debt collectors are prohibited from using abusive, unfair, or deceptive practices. They cannot contact you before 8:00 a.m. or after 9:00 p.m. local time, unless you agree. They also cannot harass you, use profane language, or threaten violence. Debt collectors cannot discuss your debt with third parties, such as your employer or family members, except to locate you. Misrepresenting the amount owed, who they are, or the legal consequences of not paying is also prohibited.
A right under the FDCPA is debt validation. Within five days of initial contact, a debt collector must provide a written notice with specific information about the debt. This notice must include the amount, the original creditor’s name, and your right to dispute the debt within 30 days. If you dispute the debt in writing within this period, the debt collector must cease collection activities until they provide written verification.
The sale of your debt can impact your credit report. The original delinquent account may show as “sold” or “transferred,” and the debt buyer might report the debt under their company name. A collection account can remain on your credit report for up to seven years from the date of the first missed payment. Paying off the debt may update its status to “paid” on your report, but the collection entry itself remains for the full seven-year period.
Debt buyers can pursue legal action to collect the debt, potentially obtaining a court order for wage garnishment or property seizure. However, a legal time limit, known as the statute of limitations, exists for a debt buyer to sue you. This timeframe varies, often three to six years for credit card debt. If the statute of limitations has expired, the debt is “time-barred,” meaning the debt buyer cannot sue you for it, though the debt itself does not disappear.
Responding to a Debt Buyer
When a debt buyer contacts you, communicate in writing and keep detailed records of all interactions. Do not give them personal financial information unless you are making a payment. Avoid making any payments or promises to pay before validating the debt, as even a small payment could restart the statute of limitations.
To send a debt validation request, draft a letter requesting validation of the debt under the FDCPA. Include your full name, address, and the account or reference number provided by the debt buyer. Request specific details:
Proof that you owe the debt.
The name of the original creditor.
An itemized breakdown of the amount owed.
Documentation that the debt buyer has the legal right to collect it.
Sending this letter via certified mail with a return receipt requested provides proof of delivery.
After validating the debt, you may have options for resolving it. Debt buyers often purchase debts at a significant discount, making them willing to negotiate a settlement for a lower amount. Many are open to settling for 30% to 50% of the original amount. If you reach a settlement or payment plan, ensure you get all terms in writing before making payments. This agreement should detail the settled amount, payment schedule, and confirm the debt will be resolved upon completion.
If a debt buyer files a lawsuit against you, do not ignore the legal notice. Ignoring a lawsuit can result in a default judgment, leading to wage garnishment or bank account levies. Respond to the lawsuit within the timeframe specified in the court papers, usually 20 to 30 days. Responding does not mean you admit to owing the debt but allows you to present your case and explore potential defenses, such as an expired statute of limitations.