Selling Debt in the UK – Complete Guide

Are you looking for information on how debt is bought and sold in the UK? You’ve come to the right place. Our website is trusted by over 170,000 people each month for advice on debt solutions.

In this article, we’ll explain:

• What does it mean to sell a debt?
• Why do creditors sell debts?
• Should you pay a debt collection agency?
• Who buys debt and why?

You might be worried about your debt being sold to a different company. We understand your concern, as some of our team members have been there too.

But don’t worry! We’re here to explain why creditors sell debts and what happens when they do.

Why Do Creditors Sell Debts?

As for why most lenders sell debt, it’s a pretty simple answer.

Your lender likely specializes in lending money and collecting repayments. They don’t fancy chasing you around for your debt or getting you to repay them if you’re bailing on your payments.

If you’re someone who isn’t making regular payments and have shown little to no intention of repaying your debt in the near future, your lender may eventually get frustrated and outsource this debt recovery task to a debt purchaser or a debt collection agency.

Also, if a lender is incurring a lot of financial loss in getting a debtor to repay them or taking them to court, the creditor may choose to pass the debt to third-party debt purchasers and settle for a small percentage of the total debt amount.

It is, therefore, more cost-effective for the lender to pass the debt to professional debt collection services than try to recover the debt themselves.

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How Does it Affect You When a Lender Sells off Debt?

Technically, a sold debt doesn’t affect you much.

But keep in mind that your lender can sell your debt even if you have made a payment arrangement that has been accepted.

This is because their terms and conditions typically include a paragraph that says they can assign the rights for the debt to a third party.

Your rights and liabilities, nonetheless, remain the same as they were in the original debt. So do the original terms and conditions between you and your lender.

The only thing that really changes is the person or agency you have to pay back.

The debt collector that buys your debt becomes your original creditor, with all the rights and responsibilities pertaining to the debt as the previous lender.

However, the debt purchaser is not allowed to change the terms of your debt if that’s something the original creditor wasn’t allowed to do. For example, if the original lender wasn’t allowed to add interest to your debt, neither can the debt purchaser.

When a debt is sold to a collection agency, you then owe the money to them instead, meaning you still have to pay what you owe.

Contact them straight away to explain your situation. Let them know your affordability, especially if you’re vulnerable.

Should You Pay a Debt Collection Agency?

Here’s the tricky part: a lot of debtors, when they’re contacted by a debt collector, assume that their debt has been sold off to the agency and that they’re supposed to pay the collection agency, not their original lender.

My advice is that unless the agency clearly informs you that they’ve bought your debt, it’s likely that they’re working for your lender, and you still owe the repayment to the original lender.

In such a situation, paying the agency depends on a few things:

• If the agency now owns the debt, you should communicate and start a repayment plan if possible.
• If you think the debt you’re being contacted for doesn’t belong to you, you can dispute this with the agency. Ask them to send proof by way of the original agreement.
• If the agency doesn’t own the debt and is harassing you or threatening to have you jailed, you can invoke some methods and legal procedures to get them to back off, at least temporarily.

Remember, if you do not make payments, then the agency can take you to court to register a County Court Judgement (CCJ) against you. The CCJ will order you to pay the debt.

A CCJ only happens if the debt collector has been chasing you for some time and failed to get a response from you. They will first have to send you a warning letter (default notice) to ask you to make payment to avoid court.

I must also point out that a debt collection company does not have the power to send bailiffs to your home.

If they send their agents to your door, do not allow them inside.

I suggest you do everything to come to an agreement with them via the phone or a letter so it doesn’t reach here. They could be more willing to work with you to create an affordable payment plan.

Now, if you fail to repay their debt even after a CCJ is issued, the agency can apply for further enforcement action, which might include the use of bailiffs.

Who Buys Debts & Why?

A debt purchaser or a debt collecting agency buys your debt from your creditor.

When the debt amount is large, and your creditor sees little to no chance of getting it back themselves, they might contact a debt buying agency and sell your debt off in exchange for a percentage of the amount they would’ve received if you repaid it in full.

Once the loan has been sold, the debt collector has the right to collect the full amount from you but in line with the Financial Conduct Authority’s rules.

Let’s say a debt worth around £1000 is sold to a debt collector for £600. The creditor gets £600 immediately, and the debt collector would try to recover the full amount, which is £1000, from the debtor so as to earn a profit of £400.

That’s how debt collection agencies make their profit from buying defaulted debt.

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