What happens when a debt is sold to a collection agency? This is a good question, and we have a comprehensive answer for you right here.

On many occasions, people who are in debt receive a debt letter from a debt collection agency they don’t recognise. Because the name is unrecognisable, debtors often get defensive and say the debt letter is a mistake or a scam. But what has really happened is the debt collection agency has purchased your debt from the company you owed the debt to.

Now you owe the debt to the debt collection agency – and they want the money. But there are things you can do. We have some important information to explain what happens when a debt is sold to a collection agency.

What Is a Debt Collection Agency?

A debt collection agency is a company that generates a profit by buying debts from creditors for less than their full amount, and then chasing these debts up to get them paid and make a profit. Sometimes debt collection agencies work on behalf of companies to chase debts, and instead of buying the debt, they get the money for the company and take a cut for their work.

Note, a debt collection agency is not the same as a bailiff. The former is a company that predominantly does administration work, whereas the latter is a person that comes to your door to collect debt after it has been to the courts.


Why Do Creditors Sell Debt to Collection Agencies?

Creditors and companies will sell debt to debt collection agencies because they do not have the resources, staff, time or a combination of these things to chase the debt. Looking for debtors and getting them to pay is a difficult job, and these businesses would rather focus on running their business than chasing debts. Consequently, they sell the debt to the agency instead.

It should also be noted that some debt collection agencies will buy debts from other debt collection groups that go out of business. This can cause serious confusions amongst debtors.

How Much Do Debt Collection Agencies Pay for Debts?

As chasing debts can be a lot of work, debt collection agencies don’t usually pay anywhere near the full value of the debt. Some debt collection companies will pay around 25% of the overall debt worth.

For example, if there was a debt for £1,000, with a utility supplier, the agency may buy this from the utility supplier for £250 and the debtor now owes the debt collection group instead of the household utility supplier.

Does That Mean I Get to Pay Less?

If your debt has been bought by a debt collection agency, you still owe the full amount of the debt. If you take our previous example, you would still owe the £1,000 debt – not the £250 that the collection agency paid for it.

The reason you owe the full amount and not the much lower amount that the debt collection group pays for the debt is because they are a commercial company wanting to make a profit out of you. Debt collection is not easy, and these companies need to pay people to chase the debt from you.

What Happens When a Debt Is Sold to a Collection Agency?

When a debt is sold to a debt collection agency, any future payments towards the debt must be made to the agency as you do not owe the original company anymore.

The debt collection agency will usually make first contact by stating that they have your debt and want full payment. If you don’t make a full payment, they will threaten court action. However, you should know that most collection agencies are not expecting you to make a full payment.

If you contact them and negotiate a feasible repayment plan, they are likely to accept. But this depends on your specific circumstances. But never agree to repay until the collection agency can prove you owe the debt with a signed agreement!

If you ignore the debt letter, it may be that your debt goes to the county court. If the debt is then proven to be genuine and live, the court can force you to pay. This is when bailiffs may be used to come to your home and request payment or repossess items.

Can I Ignore a Debt Collection Agency?

Ultimately, it is always best to avoid the debt going to court and don’t ignore any debt letters. There are limited times when you can ignore a debt collection agency. This is when:

  • You have asked for proof that you owe the debt and they did not supply it, but they continued to ask for money. You must keep the communications showing you asked them for proof. And you should complain about their actions to the Financial Ombudsman (this is harassment).
  • You have told the debt collection agency that your debt is statute barred (too old to be legally enforced) and they continue to ask for payment. Again, you should complain if they continue to harass you.

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What Can I Do if I Cannot Afford to Pay My Debt?

If it has been proven that you owe the debt, but you cannot afford to pay the full amount, always contact the debt collection agency to explain your circumstances. They may be able to offer you a repayment plan that works for all parties and leads to you becoming free of debt.

If you are unsure of how much you can comfortably afford, you can contact UK debt charities, such as Step Change, to get advice and support.

Lastly, you can always investigate other debt solutions discussed in an easy-to-understand way on Money Nerd. Check out our other content, today.

About the author

Scott Nelson

Scott Nelson is a financial services expert, with over 10 years’ experience in the industry, including 6 years in FCA regulated companies. Read more
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