Have you ever wondered what happens to unpaid debts? If you’ve fallen behind on payments, you may have heard about debt buyers – companies that purchase unpaid debts from lenders. But who are they, and how do they operate?

Understanding how debt buyers work can help you navigate financial challenges and protect your rights. In this article, we’ll explore what debt buyers do, why lenders sell debts, and what it means for you if your debt has been sold.

What Is a Debt Buyer?

A debt buyer is a company or individual that purchases overdue or charged-off debt from lenders at a reduced cost. These debts come from credit cards, loans, utility bills, and other financial obligations. Once acquired, the debt buyer attempts to recover the outstanding amount, either directly or through a third-party collection agency.

Key Facts About Debt Buyers:

• They purchase overdue debts for a fraction of the original amount.
• Lenders sell debts to recover some funds instead of writing them off entirely.
• Debt buyers may collect the debt themselves or outsource the process.
• Regulations exist to prevent unfair treatment of borrowers.
• Having a debt sold does not remove the obligation to pay and can impact your credit score.

Why Do Lenders Sell Debt?

Lenders sell debts when they determine that collecting the full amount is unlikely. Instead of absorbing the entire loss, they sell the debt to a third party for a smaller sum, often between 5% and 30% of the original balance. This way, they recover at least a portion of what is owed.

What Happens When a Debt Is Sold?

1. The lender writes off the debt and closes the account.
2. The borrower is notified that a debt buyer now owns the debt.
3. The debt buyer contacts the borrower to arrange repayment.
4. If unpaid, legal action may follow within the statute of limitations.

Once a debt is sold, the new owner can attempt to collect it, and this process can affect your credit score. Even if the lender no longer owns the debt, your responsibility to repay remains.

How Debt Buyers Operate

Debt buyers acquire large portfolios of unpaid debts from banks, credit card companies, and utility providers. These debts are typically sold after 120 to 180 days of non-payment. Debt buyers then attempt to recover the money through collection efforts.

Types of Debt Buyers:

• Active Debt Buyers – Collect the debt directly from the borrower.
• Passive Debt Buyers – Outsource collection to agencies or legal firms.

Because debts are purchased at a reduced cost, debt buyers make a profit by collecting more from borrowers than they originally paid for the debt.

For example, if a company buys a £1,000 debt for £100 and the borrower repays £500, the debt buyer earns a substantial return.

The Impact on Credit Scores

When a debt is sold to a debt buyer, it can have a serious effect on your credit score. A charge-off remains on your credit report for seven years from the date of the first missed payment. Additionally, the new debt owner will report the account as being in collections, further damaging your financial standing.

How to Minimise Credit Score Damage:

• Negotiate a settlement – Some debt buyers accept lower repayments if agreed in advance.
• Make timely payments – Clearing the debt can help improve your credit score over time.
• Monitor your credit report – Ensure all information is accurate and dispute any errors.

Consumer Protections Against Debt Buyers

In the UK, debt buyers must follow strict regulations to ensure ethical collection practices. The Financial Conduct Authority (FCA) oversees debt collection activities, ensuring borrowers are treated fairly.

Key Consumer Protection Laws:

• Fair Debt Collection Practices Act (FDCPA) – Prohibits harassment and misleading information.
• Fair Credit Reporting Act (FCRA) – Ensures credit report accuracy and allows disputes.
• FCA Regulations – Enforces fair treatment of borrowers.

If you experience unfair treatment from a debt buyer, you can file a complaint with regulators or seek legal assistance.

Common Questions About Debt Buyers

How Do Debt Buyers Make Money?

Debt buyers profit by collecting more than they originally paid for the debt. Even partial repayments can generate significant earnings.

Are Debt Buyers Considered Debt Collectors?

Yes. In the UK, debt buyers are legally classified as debt collectors and must comply with FCA regulations.

Can a Debt Collector Add Interest?

Interest can only be added if the original contract allows it. Debt collectors cannot introduce new charges beyond those stated in the agreement.

What Happens If You Do Not Pay a Debt Buyer?

If you ignore collection attempts, the debt buyer may take legal action within the time limits set by law. However, if the debt is older than six years (five in Scotland), it may be statute-barred, meaning legal proceedings cannot occur. Despite this, debt buyers may still request payment.

Managing Debt with a Debt Buyer

If your debt has been sold, taking the right steps can help you manage the situation effectively.

What to Do If a Debt Buyer Contacts You:

• Verify the Debt – Request a detailed breakdown to confirm legitimacy.
• Know Your Rights – Understand protections against unfair treatment.
• Negotiate a Payment Plan – Many debt buyers accept lower repayments.
• Seek Financial Advice – Charities like StepChange offer free support.

Dealing with Debt Collectors

Debt collectors do not have the same legal powers as bailiffs. They cannot force entry into your home or seize possessions. Their role is to encourage repayment, but they must follow ethical collection practices.

If a Debt Collector Contacts You:

• Request written proof of the debt before making any payments.
• Only agree to payments you can afford.
• Seek professional debt advice if you feel overwhelmed.

Can You Dispute a Sold Debt?

Yes. You can dispute a debt if:

• The original creditor failed to follow legal procedures.
• The debt is statute-barred (older than six years in England, five in Scotland).
• There is missing documentation proving the debt’s validity.

If you believe your debt was sold in error, contact both the original lender and the debt buyer for clarification.

Getting Help with Debt

If you’re struggling with repayments, professional assistance is available. Charities and organisations offer free advice and solutions to help you regain control of your finances.

Debt Solutions Available:

• Debt Management Plan (DMP) – Affordable repayment plans.
• Debt Relief Order (DRO) – Suitable for low-income individuals.
• Individual Voluntary Arrangement (IVA) – Formal agreement to repay over time.
• Bankruptcy Advice – A last resort for those unable to repay debts.

Final Thoughts

Debt buyers play a major role in the financial industry, helping lenders recover losses by purchasing and collecting overdue debts. If your debt has been sold, it’s important to understand your rights, options, and the steps you can take to manage repayment effectively.

By staying informed and seeking professional advice, you can navigate debt collection with confidence and work towards financial stability.

If you’re looking for a fair and straightforward way to sell or manage your debt, We Buy Any Debts can provide expert guidance and support tailored to your situation.