The right to collect on a debt can change hands more often than you think. Your original creditor has the option to assign your debt to a debt collection agency, or outright sell it to a debt purchaser. Selling debts to a debt buyer or assigning it to a debt collection agency works for creditors due to a number of reasons. It may also provide a few benefits for borrowers.
If a debt has not been paid, debt collectors will always go to the debtor in order to reclaim the money. If that fails, it is likely that the collector will then contact the guarantor, if the debtor has nominated a guarantor. If the debtor has no guarantor, they will solely be responsible for repaying the debt.
Why Do Creditors Sell Debts?
Creditors are not usually involved in chasing after errant borrowers. Creditors are engaged in lending and collection and often assign the task of debt collection to third parties. This is allowed by the Consumer Credit Act, the law that covers commercial lending in the UK. The option to sell a debt becomes possible as soon as the borrower fails to pay a debt. The option to sell debts to third parties also covers different kinds of debts, from personal and secured loans to overdrafts and credit cards.
Creditors assign or sell debts to debt collectors or debt buyers, companies that specialise in debt collection from errant borrowers. Debt collectors often function as collection agencies where they collect debts in favour of the creditor.
Debt collectors differ from debt purchasers. The latter buy debts from creditors and collect these debts as their own, rather than collecting these debts for another company. These companies have systems in place to run after borrowers that refuse or are unable to pay their debts. For one, most debt collectors can arrange a payment plan to facilitate timely payments.
Are there any benefits to this process?
Debt collection by third parties benefits both borrowers and creditors in a number of ways. Creditors often sell uncollected debts to debt purchasers to eliminate the need to go after the borrowers themselves. Another advantage is that they get money up front and no longer have to deal with the uncollected debts. Since creditors no longer have to do the work of collecting debts from borrowers, they can focus on the main objectives of their business, which is lending money. Selling debts is particularly advantageous for creditors that lack the resources or the manpower to go after uncollected debts. On the other hand, borrowers’ rights and obligations remain the same even if the debt has changed hands. Borrowers can also negotiate with the debt collector for a suitable payment plan so they can pay the debt on time.
So do you have to pay?
If your debts have been sold to a debt collection company, the answer is still yes. The collecting party may have changed, but your debts still exist and you need to pay them. However, UK borrowers are protected by the Consumer Credit Act, which ensures that your original debt and provisions pertaining to interests and surcharges remain unchanged, even if your debt has been sold to a debt collector. It is important to look at your loan agreement and familiarise yourself with the Consumer Credit Act to make sure that you can protect your rights.
Passing on a debt to a debt collection agency is part of the regular course of the debt collection process. The best course of action to take when dealing with debt collection agencies is to negotiate with them so you can work out a repayment solution that can work for both parties.
In some instances, a debt may not have been paid due to the debtor passing away. However the debt of someone that has passed away will still need to be paid.
What happens if I don’t pay?
Debt collectors have a legal right to recover the debt from you, whether that means you agree to pay the amount, come up with a payment plan or get a friend or family member to pay the debt for you. Because of the legal right they have, if you fail to pay the debt, this can potentially end up as a CCJ against your name which can drastically affect your credit score. Any form of missed payments will harm your credit score, no more so than a CCJ.