Yes, debt collectors buy debt, and they buy it cheap. According to a Federal Trade Commission study, the largest debt buyers paid an average of four cents for every dollar of face value across the portfolios studied.1Federal Trade Commission. The Structure and Practices of the Debt Buying Industry When a company you’ve never dealt with starts calling about an old credit card or medical balance, that secondary market is almost always the reason. The debt still belongs to someone; it just belongs to someone new.
How Your Debt Ends Up With a Buyer
After roughly 120 to 180 days of missed payments, your original creditor “charges off” the account. That is an accounting move, not forgiveness. The balance comes off the creditor’s books as a loss, but you still owe it. The creditor then bundles thousands of these accounts into a digital portfolio and sells the whole package.
Buyers compete at auction or negotiate directly with creditors, sometimes through brokers. A formal assignment agreement transfers the legal right to collect from the original lender to the new owner.2SEC. EX-10.39 Loan Assignment Agreement Once that closes, the original creditor typically walks away from the account and the buyer handles all future contact.
Which Debts Actually Get Sold
Unsecured debt dominates this market. Credit card balances lead by volume, followed by medical bills, utility balances, and personal loans from banks and online lenders. Private student loans also get sold to collectors.
Some debts you might expect to see rarely appear in bulk sales. Mortgages and auto loans stay largely outside this market because foreclosing on a home or repossessing a car involves property-specific proceedings that don’t fit a high-volume collection model. Federal student loans are also different: private lenders must win a court judgment before garnishing wages and can’t touch tax refunds or disability benefits the way the federal government can.
What Buyers Pay, and Why That Matters to You
The FTC found buyers paid an average of 4.0 cents per dollar of face value overall. Debt bought directly from the original creditor averaged 4.3 cents; debt resold from one buyer to the next dropped to about 2.9 cents.1Federal Trade Commission. The Structure and Practices of the Debt Buying Industry A $10,000 credit card balance might have sold for $400 or less.
Prices move with a few factors. Fresh accounts sell for more than accounts near the statute of limitations. Portfolios that include original applications, monthly statements, and signed agreements command a premium because the buyer can prove the debt if you dispute it or if it ends up in court. Credit card accounts, with clean records, price higher than medical debt, where billing disputes are common and documentation is often thin. Accounts that other collectors have already worked and failed to collect on trade cheapest.
This is the leverage point. A buyer who paid $400 for a $10,000 balance has plenty of room to accept a fraction of the face value and still profit.
Your Rights Once a Buyer Contacts You
Most debt buyers fall under the Fair Debt Collection Practices Act and the Consumer Financial Protection Bureau’s Regulation F, which explicitly names debt buyers among the entities it regulates.3Office of the Law Revision Counsel. 15 USC 1692a – Definitions That gives you specific tools.
Debt Validation
Within five days of first contacting you, a debt buyer must send a written notice with the amount owed and the name of the original creditor. You then have 30 days to dispute the debt in writing. Once you do, the buyer must stop all collection activity until it sends you verification.4Office of the Law Revision Counsel. 15 USC 1692g – Validation of Debts Buyers who purchased thin portfolios without original account records sometimes can’t meet that burden. Disputing early is worth doing for that reason alone.
Stopping the Calls
You can send a written letter telling the buyer to stop contacting you. Once received, the buyer can only reach out to confirm it’s ending its efforts or to say it plans to take a specific legal action, like filing suit.5Office of the Law Revision Counsel. 15 USC 1692c – Communication in Connection With Debt Collection The letter does not erase the debt or prevent a lawsuit. It stops the phone calls and letters.
The Statute of Limitations Trap
Every state sets a deadline for suing over an unpaid balance, ranging from three to ten years depending on the state and the type of debt. Once that window closes, the debt is “time-barred” and a collector who sues or threatens to sue violates federal law.6Consumer Financial Protection Bureau. Regulation F Section 1006.26 – Collection of Time-Barred Debts
The clock usually starts from the date of your last payment or the date you first fell behind. Here is where people get hurt. Making even a small partial payment or acknowledging the debt in writing can restart the clock, handing the buyer a fresh window to sue.7Consumer Financial Protection Bureau. Can Debt Collectors Collect a Debt Thats Several Years Old Before paying anything on old debt, check your state’s time limit.
A buyer can still contact you about time-barred debt and ask for voluntary payment. What it cannot do is sue you or threaten to.8Consumer Financial Protection Bureau. Fair Debt Collection Practices Act Regulation F – Time-Barred Debt
What Sold Debt Does to Your Credit Report
When a buyer takes over your account, a new collection entry often appears alongside the original creditor’s charge-off. Federal law requires this negative information to come off after seven years from the date you originally fell behind and never caught up.9Office of the Law Revision Counsel. 15 USC 1681c – Requirements Relating to Information Contained in Consumer Reports If the debt gets resold, the seven-year clock does not restart. It’s tied to your original delinquency date, not any later transfer.
Medical debt sits in a shifting spot. The three major credit bureaus have voluntarily limited medical debt reporting in recent years but have not removed it completely. If a medical collection does appear on your report, the same seven-year limit applies.
Settling for Less Than You Owe
Because buyers pay so little, they can settle for a fraction of the balance and still make money. Typical lump-sum settlements land between 30% and 50% of the original balance, though the range depends on the age of the debt, your finances, and how aggressively the buyer is pursuing you. Older debt approaching the statute of limitations gives you more leverage because the window to sue is closing.
Before you send any money:
- Get the agreement in writing and signed before you pay. A verbal deal is worth nothing if the buyer later claims you still owe the rest.
- Make sure the letter says “paid in full” or “settled in full.” Otherwise the remaining balance can stay technically outstanding and cause credit-report problems.
- Think about the tax hit before you agree to a number.
The Tax Bill on Forgiven Debt
If a buyer accepts less than the full balance, the IRS treats the forgiven portion as income. Any creditor or debt buyer that cancels $600 or more must file Form 1099-C reporting the canceled amount.10Internal Revenue Service. About Form 1099-C, Cancellation of Debt Owe $8,000, settle for $3,000, and the remaining $5,000 can show up as taxable income.
Two exceptions matter. You can exclude canceled debt from income if you were insolvent when it was canceled, meaning your total debts exceeded the fair market value of everything you owned. The exclusion is capped at the amount of your insolvency, and you claim it by filing Form 982.11Internal Revenue Service. Publication 4681 – Canceled Debts, Foreclosures, Repossessions, and Abandonments Debt discharged in bankruptcy is also excluded.12Internal Revenue Service. Canceled Debt – Is It Taxable or Not
If the Buyer Sues You
Debt buyers file lawsuits regularly and win many of them by default because the consumer never responds. Ignoring a summons almost guarantees a default judgment. Once a buyer has a judgment, it gets enforcement tools it didn’t have before: wage garnishment and bank account levies.
Federal law caps wage garnishment for consumer debts at 25% of your disposable earnings, or the amount by which your weekly earnings exceed 30 times the federal minimum wage, whichever is smaller.13Office of the Law Revision Counsel. 15 USC 1673 – Restriction on Garnishment Several states cap it lower, and a few prohibit wage garnishment for consumer debt entirely.
Check the statute of limitations first. If the debt is time-barred, that’s an affirmative defense, but you have to show up in court and raise it. Judges typically won’t dismiss a time-barred case on their own.
When the Buyer Breaks the Law
Buyers covered by the FDCPA face real consequences for violations. If a buyer contacts you at prohibited times, misrepresents what you owe, threatens action it has no intention of taking, or ignores your written dispute, you can sue. A court can award actual damages for any financial harm you suffered, up to $1,000 in additional statutory damages, plus your attorney’s fees and court costs.14Office of the Law Revision Counsel. 15 USC 1692k – Civil Liability
The fee-shifting provision matters more than the $1,000 figure suggests. Because a losing debt buyer pays your lawyer, consumer attorneys regularly take these cases on contingency, which makes it financially realistic to pursue even a small violation.