Requirements for Assigning a Debt Account to a Debt Buyer or Collector

Credit card companies, banks and other lenders assign or sell accounts to debt collectors after the account holder stops paying as agreed. The action usually takes place on credit cards after the account is six months past due, although the card company can act sooner. All lenders assign or sell accounts to debt collectors at their discretion and the time line varies. Before the creditor sends a debt to a debt collector or debt buyer, it lists the debt as a charge-off. .

Considerations

A charge-off is an internal accounting term indicating that the creditor has closed an account because of nonpayment. It does not end the account holder's responsibility for paying the debt. Charge-offs are a very negative credit event and can cause a significant drop in credit scores. People with recent charge-offs on their credit reports may find it difficult or impossible to qualify for new credit at reasonable interest rates.

Assignment

Creditors have several options after the charge-off. They can assign the debt to an internal collections team for further collection efforts, decide not to pursue collection at all or assign or sell the debt to an outside debt collector. Assignment places the debt with an outside debt collector working on commission. The debt collector earns money only if it collects a portion or all of the debt. Creditors usually give the debt collector a period of time, such as several months, to collect. If the debt collector fails or does not make significant progress the creditor may elect to transfer the debt to another debt collector, with the process starting again.

Sale

So-called "junk-debt buyers" purchase delinquent debt and pay as little as pennies on the dollar. The purchase gives them the right to collect the full amount due, creating the chance for tremendous profits. Creditors have their own individual policies about when to sell a charged-off debt. The creditor can sell the debt immediately after charge-off or wait months or even years. The debt remains valid forever, regardless of its age. State statute of limitation laws regulate the length of time debt collectors can use the court system to file lawsuits and gain monetary judgments, but even after that other collection efforts can continue.

Federal Law

The Fair Debt Collection Practices Act regulates the behavior of debt collectors as they attempt to collect. Junk-debt buyers and debt attorneys must also abide by the act. Upon assignment or purchase of the debt, the debt collector, attorney or debt buyer must send a written notice to the debtor. The letter indicates that the debt collector, attorney or debt buyer has the legal right to collect the debt in full. However, the debtor has the right to respond to the letter within 30 days requesting proof that the debt is valid. By law, the debt collector, buyer or attorney must cease all collection efforts until providing the proof, which can be a copy of the last billing statement or a copy of a signed contract or promissory note.