Debt Buyer: Definition, How They Make Money, vs Debt Collector

Debt buyers are companies that purchase delinquent debt from creditors for a fraction of the amount owed. They then attempt to collect on that debt by any means necessary, including legal action. They have become a big business in recent years, as the amount of consumer debt has increased.

Debt buyers have come under fire in recent years for their aggressive tactics and for often seeking judgments against consumers who may not be able to pay the debt. Some states have passed laws to protect consumers from these practices, but there is still much work to be done.

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Table of Contents

What is a debt buyer?

A debt buyer is a company that buys debt from other companies for a lower price than the amount of money the debtor owes. The debt buyer then tries to collect the money that is owed.

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When a creditor sells a debt to a debt buyer, the creditor can write off the loss on their taxes. So this means when the debt collector buys a debt, they are buying an IOU for a lower price. The original creditor gets some money and the debtor still owes the full amount.

How do debt buyers work

Debt buyers are small and medium size businesses that purchase delinquent debt from creditors for a fraction of the amount owed.

Debt buyers often purchase delinquent debt, such as automobile loans, credit card debt, and other types of consumer debt. The creditors are generally banks, credit unions, and private finance companies.

Debt buyers can collect the debt by themselves or can outsource other agencies to help them to collect the debt. The agencies that help debt buyers are usually collection agencies, law firms, or skip tracers.

How do debt buyers make money

Debt buyers purchase hundreds of debts in bulk from original creditors at significantly reduced rates. Debt buyers then make profits by purchasing debt for a low price and then attempting to collect from the debtors.

Even if the debt buyer gets only a small percentage of debtors to pay, they can still make a profit because they bought the debt for pennies on the dollar.

The debt buyer market is a multi-billion dollar industry because there are a lot of delinquent debts and many people are not able to pay them.

How do debt buyers collect money

Debt buyers use a variety of methods to collect money from debtors. They may call the debtor, send letters, or even hire a collection agency.

Some debt buyers will sue the debtor in court to get a judgment against them. This allows the debt buyer to garnish the debtor’s wages or put a lien on their property.

If the debt buyer is unable to collect from the debtor, they may sell the debt to another collection agency or write it off as a bad debt.

Conclusion

As people continue to struggle with debt, the debt-buyer market will likely continue to grow. Companies that purchase debt can be very profitable, even if they only collect a small percentage of the debts they purchase. It’s a profitable business but it’s important to understand all the laws and regulations before purchasing any debt.