Market Overview

What To Do If Your Debt Is Sold


Just as assets can be sold, so can debts. It's possible for your auto loan or mortgage lender to sell the rights to your debt to someone else. If your debt is in good standing, the terms and conditions of your agreement generally apply, but matters relating to the servicing of your loan — such as due dates and payment arrangements — may change.

The new loan servicer must notify you within 30 days of assuming your loan, providing the date of transfer and the contact information that you will need to continue your payments. Since the due dates may change and any autopayment functions may need to be established, you should act as early as possible and contact the new servicer to work out details and verify that your loan terms remained intact. Mistakes can happen, and it's less costly to spot them early.

If you already sent your payment into the previous servicer, don't panic. You have a right to a 60-day grace period that waives late fees if you mistakenly sent the payment to the wrong lender.

The greater risk is that you ignore the notification without reading it in detail, thinking that it's junk mail or a scam. Ignoring the notification will result in missed payments and the corresponding ramifications to your loan terms and your credit score.

If you fail to meet the terms of conditions of repaying a debt and a creditor is unsuccessful in securing payment from you, the creditor may assume that you will never pay. Your debt may then be sold to a debt buyer at a discount, or the creditor may contract with a collection agency that will keep a portion of any payment and turn the rest over to the original creditor.

Either way, you will end up being contacted by an unfamiliar collection agency with a notice to pay up. It may not be clear what debt is being pursued — or whether the debt is even yours at all. Then, how do you proceed?

Before you take any action, familiarize yourself with the Fair Debt Collection Practices Act (FDCPA). This legislation protects you against debt collectors using "abusive, unfair, or deceptive practices" in order to get you to pay. Debt collectors have limitations on the times and places when they can contact you, and they may not harass you in the collection of the debt. Note that the FDCPA does not apply to the original creditor.

Start by verifying that the debt is valid and belongs to you. It's not uncommon for debt collectors to have incomplete and/or incorrect information.

By law, debt collectors must provide information about the debt, including the name of the creditor and the amount owed, and they must inform you that you have the right to dispute the debt. You may request the name and address of the original creditor and you are entitled to have this information sent to you in writing within five days of the first contact.

You can dispute part or all of the debt by outlining your dispute in writing and sending the notice to the debt collector within thirty days of receipt of the information. The debt collector cannot contact you to collect the disputed debt until you receive a reply from the debt collector verifying the debt.

Disputes on debt collection practices may be filed with the Consumer Financial Protection Bureau (CFPB). Some states have their own laws regarding fair debt collection practices, so check with your state's Attorney General's office to see if any other rules apply where you live. Keep this in mind: if the debt truly is yours, the debt collector has the right to pursue legal action against you to recover the funds.

States have different statutes of limitations on when a debt collector can no longer sue you to recover funds. Find out the statute of limitations in your state here. Be careful in communicating with the bill collector, because if you acknowledge that an expired debt is yours, you can potentially revive the statute of limitations on that debt.

Even though negative information will drop off your credit report after seven years (the sale of your debt does not reset this limit), it is generally best to attempt to settle the debt to minimize the damage. Settling a debt does not necessarily mean paying in full. Debt buyers often purchase the debt for pennies on a dollar, and they will be more likely than the original creditor to settle for a percentage of the original debt. Beware of how this may impact your credit score, though. "Any time an account is settled for less than you originally owe, it's going to hurt your credit history," cautions Rod Griffin, Director of Public Education with credit bureau Experian. "The term 'settled' in the credit world is not a good thing; it means you didn't fulfill the contractual terms." Griffin points out, however, that in some situations it may be the best thing for you to do, "…you just need to understand exactly what you are doing."

Negotiation may not work as well with a collection agency that has contracted with the original creditor, because they are splitting the proceeds with the creditor that still owns the debt. Still, it pays to negotiate. Debt collectors would probably rather accept a partial payment or a payment plan than fight you over the full payment balance.

When confronted with a sold debt, you have three actions to take:

  • Verify that the debt is yours, and dispute it if it isn't.
  • Understand your rights and the applicable state laws, along with the statute of limitations.
  • Decide on your plan. Negotiate if you plan to pay and are willing to find a compromise, and understand the potential risks if you refuse to pay.

Whether your sold loan is in good standing or delinquency, there is one common thread — you must take action quickly. Nothing good will come from waiting.

Benzinga's personal finance staff have curated everything you need to know when choosing the appropriate bank. Learn about fees, interest rates, banking products, and more at and

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The preceding article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

Posted-In: contributor contributors Debt SettlementRegulations Personal Finance


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