How Does Debt Collection Work – Agencies That Buy Debt
In some situations, a creditor decides that debt is unlikely to be retrieved. It combines all its debt accounts with similar features to form a package, which is then sold to debt buyers. This helps to retrieve some of the debt owed. Such packages can range from more recent debt to older debt where collectors have been unable to settle up and consider the case closed.
Marcadis Singer, PA is a creditors’ rights law firm, not a debt collection agency.
Often, if you have heard from us, that means that collections efforts from a debt collection agency have failed, and your account has been escalated to our law offices.
These debt packages are sold at face value through a bidding process. The creditor earns an average sum of 4 cents to the dollar. A debt buyer might pay $40 to purchase an unpaid account that has an owed balance of $1,000. Older debts cost even less since they are considered uncollectable. The price is also influenced by the type of debt account package on offer. Mortgage debt is generally at the higher end of the scale, while utility debt is worth significantly less.
In the debt collection industry, there is an incentive for debt collectors, which in that the more debt they recover, the greater the potential earnings. However, the capacity to earn more is greater through the bidding system. When debt buyers manage to resolve the old debt accounts they have purchased (such as those where the statute of limitations is expired or debt is considered uncollectable), the profit is all theirs rather than being a percentage cut. The debt buyer keeps everything that they collect – nothing is sent to the original creditor as the debt was bought from them. Consequently, profits can be incredibly substantial.
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