Originally posted 2010-02-11 13:01:11. Republished by Blog Post Promoter

This Is How Junk Debt Purchasing Works

Let’s say for example, that at any given time, that 1,250 people default on Capital One Visa cards, and in-house collections have only resulted in the partial recovery of money from perhaps 250 people.

Keeping the math simple, that would mean that the credit card company has 1000 debts that will be very difficult, and very expensive to collect.

Now let’s assume that the average balance on each card is $5,000.00

If we now multiply $5,000 by 1000 we find that Capital One or whoever the lender happened to be, is now looking at five million dollars of unpaid debt, and my figures are very conservative.

A Working Example

On June 20th 2009 , a website offered to sell a batch of Chapter 7 bankruptcy accounts, that had a face value of $200 million.

The sale was on behalf of Collect America, which is one of the nation’s largest debt buyers and collectors, and you will now appreciate that my earlier example of five million dollars, was very low-ball indeed.

So What Choices Does The Credit Card Company Have?

a)It can hire a large number of debt collectors.

b) It can then pay a host of lawyers to fight almost every case.

c) It can sell the debt.

Well "a" and "b" don’t look too bad at first glance, until you consider that many of the people that are located, taken to court, and ordered to pay, won’t have the money to do so, because if they’d had it, then they wouldn’t have defaulted in the first place.

In Reality Every Major Lender Chooses "c".

And It’s Now Time For The Auction!

What happens next is that the debts are bundled into a portfolio, and the highest bidder will get them.

The bidding will start very low however, and will often begin with as little as five or six cents on the dollar, because the junk companies know very little about the contents of a portfolio until after they buy it.

They’re bidding on a cat in a sack, or a pig in a poke!

What Do The Junk Firms Know When They Bid?

a) They know how many accounts there are.

b) The average balance.

c) The average charge off date.

d) How many working phone numbers exist.

The Bidding Is Over

The bidding goes from 5 cents on the dollar to 8 cents on the dollar and Junk Firm X is the lucky or unlucky winner, and it now owns the portfolio.

It’s important to note that Junk Firm X will never be listed as the original creditor, and is therefore subject to the Fair Debt Collection Practices Act.

What Happens If The First Junk Firm Can’t Collect?

From that point on, the whole debt collection thing often becomes really nasty, and we’re talking about verbal threats, and using loopholes in the law.

The original lender might have seemed uncaring and tough, but it would never threaten somebody in intensive care with legal proceedings.

The first junk buyer was probably even less caring, and he might have been underhanded and tricky, but the next one will most likely make him look like a saint.

How Does The Second Junker Buy Try To Collect?

As the law stands right now, creditors are not strictly required to report to the credit reporting bureaus, details of debts that are no longer applicable because of debt settlement or bankruptcy procedures.

So the second junk buyer, who most likely bought your debt for even less cents on the dollar, will use this loophole in the law, and will quite frequently threaten to report an already settled debt to the credit agencies.

Just imagine, that you’re in the middle of buying a house or a car, and this junk buyer threatens to have your credit rating lowered.

You’ve already settled the debt once, but you have no choice but to settle it a second time, so that you can finalize the purchase of your house or car.

Hopefully you now have a much better understanding of why debts are bought and sold, and if you’re being harassed by a debt collection agency, or are worried that you might be soon, then take the time to read an article or two about debt collection techniques, and also learn about the statute of limitation on debt collection in different states.

The author of this article was a film producer, and award winning film sound editor for many years. He has a passion and a flare for economics, and one of his websites -> http://pay-off-debts.org features the famous Get Free In Three system which has helped a huge number of people get out from under suffocating debts.

Article Source: ArticleSpan

Filed under: Debt Collection Articles

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