Why Do Companies Acquire Debts?

May 16, 2012 by  Filed under: Debt 

If you have ever had debts for any substantial period of time, you likely are somewhat familiar with the concept of someone acquiring a debt from the original creditor. In fact, you may have experienced this kind of situation even if you have had a debt that went unpaid for a relatively short time period, depending on who the original creditor is. The process is not unusual at all, but many people may not understand at first why their debt would be sold to someone else. How does it all work?

First of all, remember that collecting a debt can often require a lot of effort. Depending on who your debt was originally with, the company may not have anyone in their staff that specializes in collecting debts. Smaller companies often “send debts to collections” by having collection agencies work on their behalf to try to recoup money that is owed to them. Doing so allows the original creditor to focus on the business that they are in instead of wasting effort, time, and resources at an activity that they are not well suited for (i.e. debt collection).

Getting sent to a collection agency is often very different from having your debt literally sold to someone else, however. There are some similarities; in either case, you will not be able to handle your debt through the original creditor anymore. For instance, if you owe a local gas station for a bounced check and the owed money goes unpaid for a little while, you will eventually not be able to just go to the gas station and take care of your balance, because they will likely send the matter to a collection agency, who you will then have to work with. When your debt is sold, of course, the matter is no longer between you and the original creditor at all (in this example, the gas station).

Why would a company sell your debt to someone else? Usually, it is because the company does not think there is a great chance at recovering the debt from you. This may be because of the amount of time that has passed, because of the amount of the debt, the nature of the debt, a combination of these factors, or other reasons. No matter what the specific cause, the original creditor has decided that it is not in their best interest to continue to pursue the collections of the debt.

When that happens and they do not simply want to use the services of a collection agency, they can simply sell the debt outright to another company. They will always do this at a discount, so the original creditor (for example, the gas station from earlier) will receive a percentage, but not all, of the debt that you owed. This allows the original creditor to recoup some of the money they were owed while giving debt buyer who is now the new creditor room to make a profit if they are able to collect from you. The Debt Buyer will be someone who specializes in collecting debts.

The situation is a win/win for the purchaser of the debt and the original creditor, especially if the Debt Buyer can collect the money owed. In fact, when your debt is purchased by a new creditor, you may end up ahead, too. Often, you will be contacted and told that the Debt Buyer or the new creditor may offer settlements for less than the amount of the original debt, giving you the chance to realistically pay off the money you owe and clean up your credit a bit in one fell swoop.

At http://www.jnoassc.com, we offer Collection services for Debt Buyers and Asset Management Companies. Our consistent innovative approach to collections has proven to succeed and we will utilize those same ideas to each and every one of our clients.

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