Can the Original Creditor Attempt to Collect After a Company Sells a Debt to a Collection Agency?

Sometimes a creditor will decide to not attempt to collect an unpaid debt itself. Instead, the creditor will sell the debt. Often, uncollected debts are purchased by collection agencies -- firms that specialize in the collection of debts. When a collection agency takes possession of a debt, it takes the place of the original creditor and is granted full rights of collection. In turn, the original creditor relinquishes rights and can no longer collect on the debt.

Debt Securitization

Unless a debt's contract specifically prohibits one party from selling off the debt to another, a debt can always be sold to another party for money. The process of turning a debt into a financial security that has value as an asset is known as debt securitization. Once a debt is turned into a security, it can be sold and resold an infinite number of times, with each owner incurring a right to collect on the debt.

Collection Agencies

Collection agencies make their money by either representing a creditor in the collection of a debt or in buying a debt directly from the creditor. When a collection agency is hired by a creditor to collect on a debt, then the original creditor is allowed to continue to collect on the debt. However, if the debt has been sold to the collection agency, the creditor can no longer collect on it.

Collecting on Old Debt

Just as when a person sells a bond he is no longer entitled to collect payments from the bond issuer, when a creditor sells a debt he is selling his right to collect payments from the debtor. Under no circumstances can the creditor attempt to collect on a debt that he no longer owns. No can he charge the creditor the difference between the amount of the debt and the price for which the collection agency bought it.

Considerations

The only way that a creditor would have a right to collect on a debt after selling it to a collection agency would be if the collection agency hired him as a representative -- in effect, if the creditor and the collection agency swapped roles. This is not as unusual as it sounds. Sometimes, a creditor may also work as a debt collector, meaning that he may be hired to perform the role of a collection agency.