What Do Creditors Pay for Delinquent Debt?

Credit card issuers, finance companies and other lenders try to collect for several months if you stop paying them. These firms usually give up and write off your delinquent bill in about six months, MSN Money writer Liz Pulliam Weston explains. This does not mean you no longer owe the money. The write-off provides a tax benefit, and lenders often squeeze a few more pennies out of your account by selling it to collection agencies.

Cost

Delinquent debts fetch the most money from collection agencies when they are sold by the original creditor, selling for about 7 to 9 cents on the dollar, according to Pulliam Weston. Debt collectors sell accounts to each other, usually getting one to 3 cents on the dollar. Delinquent bills that are past the statute of limitations allowing collectors to sue go for as little as a penny, and extremely old bills sell for 25 cents per $100 owed on the account.

Considerations

Debt collectors do not need to get payment in full from you to make a profit because they pay so little for accounts. You can often negotiate a heavily discounted settlement to avoid a lawsuit if your debt is still within your state's statute of limitations. Ask the debt collector to state in writing that it is accepting the agreed-on amount as payment in full and that it will not resell the account. Often you can make removal of the collection notation on your credit reports a condition of your settlement.

Validation

Creditors who buy delinquent debt from the original owners or other collection agencies must validate the bill if you request them to do so. The Fair Debt Collection Practices Act requires them to state the amount of the debt and the name and address of your original creditor, no matter how many times the account has been sold.

Warning

You owe a delinquent debt forever, even though you cannot be sued for it once your state's statute of limitations passes, so collection agencies can continue to sell it and pursue payment. A debt collector may ask you for a very small payment, but paying even one dollar can restart the clock on the lawsuit period, according to Bankrate.com writer Marcie Geffner. Write a cease-and-desist letter to any collection agency that comes after you for a bill on which the statute of limitations has run out. Demand that the agency stop contacting you, send the letter certified and get a return receipt. The agency can no longer contact you, but it can still sell the bill to another creditor.