When you have a charged off-account, your creditor can either retain ownership of that debt or sell it to another company or individual. When the sale of a debt occurs, you should receive notification from the debt buyer. Some companies find it more cost-effective to sell charged-off accounts to collections agencies rather than to spend resources attempting to collect on the debt.
Charge Off
Finance companies list loans as assets because loans bring in regular interest payments that generate profits for the company. However, when borrowers default on loans, creditors can no longer regard those loans as assets because the loans no longer generate any income. When a charge-off occurs, a creditor updates its financial records so that delinquent loans are no longer shown as assets. The company acknowledges that it does not expect to receive payment from the borrower and therefore it writes off or charges off the debt.
Debt Collection
Most finance companies have an in-house debt collection department that attempts to collect payment on delinquent and charged-off accounts. Debts chased by the in-house collections department still belong to the company that originally owned the debt. If the internal collections department proves unable to collect a debt, the company that owns the debt can either retain ownership of the debt indefinitely, in which case more company resources are used to chase the borrower, or the company can sell it.
Collection Agencies
Collection agencies usually negotiate to buy bad debts from creditors at low prices and in some instances, these firms buy debts for a fraction of the amount owed on the loan. Although the creditor agrees to sell the debt for a fraction of the balance owed, the borrower still has to pay the entire balance owed to the collection agency. However, the collection agency may agree to a compromise deal with the borrower. If a bank sold a delinquent $10,000 debt to collection firm for $1,000, that collection firm would make a 100 percent profit if it agreed to a settlement that involved the borrower making a payment of just $2,000.
Credit Reports
Some borrowers become confused about the ownership of charged-off accounts because they see an account listed twice on their credit report. Your credit history shows records of your past debts as well as your current debt obligations. Therefore, a record exists of the account you originally established with your creditor and a separate record exists that shows the account as a debt owed to the collection agency that now owns it. You must payoff the debt's current owner rather than the original owner if you want to settle the debt.
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