The difference between a debt buyer and a debt collector.

Introduction

Debt collection agencies and debt buyers are used as services to transfer bad debts and settled debts from the liabilities column on company balance sheets. Debt buyers are companies that purchase overdue accounts from businesses for a small percentage of the amount owed to the lender. A debt collector is the activity through which the borrower is pursued to repay the debt.

Debt Collector vs. Debt Buyer

Many people know about debt collectors. They are third-party companies that collect debts on behalf of other businesses. In contrast, debt buyers are companies that purchase debts from other companies and then intervene to collect those debts. A debt buyer may also be a debt collection agency that collects the debts it has purchased or may assign those debts to another debt collection agency.

The main difference between the two is the status of debt ownership. Debt collectors act as agents on behalf of the debt holders. While debt buyers become the actual owners (not agents) of the debts and can hire agents to assist them in collecting it.

Note: Once the debt is sold to a debt buyer, you will have to reach any payment agreement with the debt buyer. You no longer have the option to pay the original creditor because they no longer own the debt.

Paying a Little for Your Debts

Debt buyers do not pay much for debts. They pay a few cents on the dollar for debts, and even less for old debts. The older the debt becomes – debts that have been outstanding for several years – the lower the sale price of the debt because old debts are less likely to be collected. For example, a debt buyer might only pay $50 for a $1,000 debt. If you pay off the debt in full, the debt buyer will have made a profit of $950.

Debt buyers may purchase hundreds of overdue debts giving them more opportunities to make profits. Even if a small portion of consumers pay these overdue debts, the debt buyer can profit materially because the debts were bought for very low amounts.

Impact on Your Credit

Debt buyers can report your debt to one or all three major credit bureaus as a collection account. These bureaus include Equifax, TransUnion, and Experian. Once the account is added to your credit report, it will remain there for the duration of the credit reporting period. Your credit score may be affected when the collection account is added to your credit report.

Payment to a debt buyer will not remove the account from your credit report. However, your credit report will be updated to show that you have paid. Your credit score may improve over time if you remain committed to other timely payments.

Note: If a debt collector or debt buyer is contacting you about an old debt, it may be beneficial to reach a settlement rather than paying the full amount.

Statute of Limitations

Once you enter into a payment agreement, you have renewed your obligation to the debt buyer. Agreeing to make payments – even if it is just acknowledging that the debt is yours – can restart the statute of limitations on the debt. The statute of limitations is the period during which a debt can be legally enforced. After the statute of limitations expires, a company cannot use the court to sue you. The agreement gives the debt buyer more time to sue you if you default on the debt again.

Tax Liability on Forgiven Debts

If you reach a settlement agreement with a debt collector or debt buyer to forgive part of your debt, you must pay taxes on the forgiven amount. The forgiven amount of the debt is taxable and must be reported in the same year the forgiveness occurs. The creditor will use Form 1099-C to report this amount to the Internal Revenue Service.

Can

Cancelled, settled, or forgiven debts can come from foreclosure and repossession. If you return the property to the creditor or completely relinquish ownership, it still falls into this category if part of the debt is cancelled. Some student loans avoid this liability.

Note: Student loan debt forgiven between 2021 and 2025 is exempt from taxes, according to the provisions of the American Rescue Plan Act of 2021.

How do you know if your debt has been sold?

The original creditor is not required to inform you that they have sold your debt to another company. You may not even know until you receive a notice from a company indicating that your debt has been purchased or acquired.

If you receive a letter asking you to pay a debt, you have the right to request debt verification. You can ask the company to send you documentation showing that you agreed to the original debt and that they now have the legal right to collect this debt from you.

A company that cannot prove that you owe them has no right to collect from you, which includes listing the debt on your credit report. The government regulates the activities of debt collectors and debt buyers through the Fair Debt Collection Practices Act.

Source: https://www.thebalancemoney.com/the-difference-between-a-debt-buyer-and-a-debt-collector-4176004