Can I Sell a Debt to a Collection Agency: Price, Taxes, and Old Debt

Yes, you can sell a debt to a collection agency or debt buyer, provided you hold the legal right to collect it and can document the balance. The transfer is called an assignment, and buyers typically pay between 2 and 8 cents per dollar of face value depending on how old the debt is and what type it is. In exchange for that one-time payment, you give up all future rights to the balance and to anything the buyer eventually collects.

Whether Your Debt Is Sellable

Under general contract law, payment rights are freely assignable unless the original agreement with the debtor prohibits assignment or requires the debtor’s consent. Most commercial contracts contain no such restriction, which is why business debts move easily in the secondary market. Check your paperwork first. If there’s an anti-assignment clause, you may not be able to sell without the debtor’s sign-off.

Individuals can sell debts too, but buyers look harder at these deals. They want to confirm you actually originated the debt, that the amount is accurate, and that you haven’t already assigned it to someone else. If you loaned money to a friend or family member with nothing in writing, expect trouble finding a buyer. Verbal agreements are enforceable in many situations, but without documentation the debt is difficult to verify and harder to pursue in court, so buyers rarely purchase them.

Buyers concentrate on specific categories. Consumer credit card debt is the largest segment. Commercial debt, meaning unpaid invoices and business lines of credit, attracts buyers because the balances tend to be larger. Auto loans, student loans, mortgage deficiency balances, medical debt, and utility debt also trade, though at different prices depending on collectability.¹ Unsecured debt is preferred because there’s no collateral for the original creditor to pursue, which is exactly why the debt ends up on the market.

What You’ll Need to Provide

Debt buyers won’t close without a complete data package for each account. Federal banking regulators expect sellers to hand over:

The debtor’s full legal name, last known address, and Social Security number
All account numbers used to identify the debt, plus the date and amount of the last payment and the date of default
An itemized breakdown of the balance: principal, accrued interest, and any fees authorized by the original contract
A signed copy of the original agreement or other proof of liability, along with the most recent account statements (up to the last 12)
Any unresolved disputes or fraud claims the debtor has raised
A history of prior collection efforts, whether handled internally or by third parties¹

If the debt has already been transferred once before it reaches you, keep every prior assignment document. Gaps in the chain of title can make the debt unenforceable in court, and a buyer who spots a gap will either walk away or discount the price further.

The Assignment Agreement

The core document is an assignment agreement, sometimes called a Bill of Sale or Assignment of Debt. It names both parties, the effective date, the specific accounts being transferred, and the purchase price. Once signed, ownership and all future collection rights shift from you to the buyer.

Buyers will also ask you to make formal representations and warranties: that you hold clear title, that the balance hasn’t already been paid or discharged, and that you have the authority to transfer. If any of those turn out to be false, you can be forced to unwind the sale or repurchase the account.

How Much You Can Expect to Get

Debt sells for pennies on the dollar. A Federal Trade Commission study of the industry found an average price of 4 cents per dollar of face value across all debt types.² Age is the biggest driver:

Debt less than 3 years old: roughly 8 cents per dollar
Debt 3 to 6 years old: about 3 cents per dollar
Debt 6 to 15 years old: around 2 cents per dollar
Debt older than 15 years: virtually nothing²

Type matters too. Mortgage-related debt commands higher prices than credit card debt, and medical and utility debt sells for less.²

You’ll also see two structural options. A non-recourse sale means the buyer absorbs all risk; if the debtor never pays, you keep the money and owe nothing back. A recourse sale lets the buyer force you to repurchase specific accounts that turn out to be invalid, already paid, or successfully disputed. Recourse deals pay more, but you can owe money back months later. Read the buyback triggers carefully before you sign.

Working Through the Sale

The process is fairly standardized.

Vet the buyer. Confirm the buyer is licensed in every state where your debtors live. Licensing varies widely — some states require a collection agency license, others a separate debt-buyer registration. You can check through each state’s banking or financial regulation agency.

Send your documentation. Deliver the data package through a secure channel. Most buyers use encrypted portals; certified mail also works if you want a paper trail.

Wait through due diligence. The buyer will review each account to confirm it’s valid, hasn’t been discharged in bankruptcy, and is backed by adequate records. This commonly takes several weeks.

Execute and get paid. Once the buyer approves, both parties sign the assignment agreement, ownership transfers, and you receive payment.

What Changes After the Sale

A common misunderstanding: the Fair Debt Collection Practices Act does not apply to original creditors collecting their own debts. It applies to third-party debt collectors, meaning the buyer of your debt, not you.³⁴⁵ Your job is to provide accurate information up front and stand behind your warranties.

If you report account information to the credit bureaus, update the account status to reflect the transfer before the sale closes and notify the bureau that the account has been sold to a third party. After that, updating the status becomes the buyer’s job. If you later discover that something you previously reported was inaccurate, you still have to correct it with the bureau.⁶

Taxes on What You Lose

Selling a debt for less than its face value creates a loss that may be deductible, but the rules depend on where the debt came from.

A business bad debt — one created or acquired in connection with your trade or business — is deductible as an ordinary loss on your business return (Schedule C for sole proprietors). You can deduct even a partially worthless business bad debt, but only to the extent the amount was previously included in your gross income.⁷

A nonbusiness bad debt, like a personal loan to a friend, must be totally worthless before you can deduct anything. You report it as a short-term capital loss on Form 8949 regardless of how long it was outstanding, and you have to attach a statement describing the debt, the debtor, the amount, when it became due, your collection efforts, and why you concluded it was worthless. Your deduction against ordinary income is capped at $3,000 per year, with anything unused carried forward.⁷

A quick boundary worth knowing: selling a debt is not the same as forgiving it. A straight sale, where the buyer takes over the right to collect the full amount, does not by itself cancel the debtor’s obligation, so it generally doesn’t trigger a Form 1099-C filing. If your deal is structured so that some portion of the balance is forgiven as part of the transaction, the $600 cancellation-of-debt threshold can come into play.⁸

Selling Old or Time-Barred Debt

Every state has a statute of limitations on debt collection lawsuits, generally three to six years. Once that clock runs out, the debt is “time-barred” — a collector can no longer sue or threaten to sue on it.⁹

You can still sell time-barred debt, and buyers do purchase it, but the price is thin because the buyer’s enforcement tools are limited. The buyer cannot sue and must include specific disclosures about the time-barred status when contacting the debtor.⁹ That’s why the FTC found debt older than 15 years selling for effectively nothing.² If your debt is close to or past the limitations period, price accordingly and be upfront with the buyer about the age. Misstating the timeline can expose you to liability under the warranties in your assignment agreement.

1
Office of the Comptroller of the Currency. Consumer Debt Sales – Risk Management Guidance
2
Federal Trade Commission. The Structure and Practices of the Debt Buying Industry
3
Office of the Law Revision Counsel. 15 USC 1692a – Definitions
4
Office of the Law Revision Counsel. 15 USC 1692g – Validation of Debts
5
eCFR. Part 1006 – Debt Collection Practices, Regulation F
6
Federal Trade Commission. Consumer Reports – What Information Furnishers Need to Know
7
Internal Revenue Service. Topic No. 453, Bad Debt Deduction
8
Internal Revenue Service. Instructions for Forms 1099-A and 1099-C
9
Consumer Financial Protection Bureau. 1006.26 Collection of Time-Barred Debts