I’ve seen stories of individuals buying up a bunch of debt for cents on the dollar then just forgiving it. Why can’t this been done on an individual scale?
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In essence, buying your own debt and canceling that debt is simply paying your bills.
If you are able to buy the debt for less than you owe it is simply negotiating your bill, which debt collectors absolutely will do on an individual basis.
Bankruptcy and restructuring attorney here.
In most countries with Western legal systems, debt is created by specific forms of contracts, most typically *notes* or *bonds*. When I bought my house, I signed two primary debt instruments: a promissory *note* saying that I’ll pay back $X at Y% rate of interest over Z months, and a *mortgage* saying that if I don’t pay the debt I promised to pay pursuant to the note, then the *holder* of the note can foreclose on the collateral for the loan, i.e., my house.
But the *holder* does not have to be the original lender! In the U.S., there’s a specific body of law that governs the *assignment* (basically, the transfer, but only by the lender) of *commercial paper*, including notes. (It’s Article 3 of the Uniform Commercial Code, which is a state law that has been adopted in all 50 states in almost identical form.) Somewhat similar laws govern the assignment of bonds, and I’m not quite as familiar with those. However, the laws standardize bond assignments to the point that if you’re so inclined, you can even buy them on most retail brokerage Web sites. There was a time when I held corporate debt in my portfolio.
Without getting too deep into the specifics, with those laws in place, the note or bond can be traded like basically any other asset, and they frequently are. My debt is to the holder of the note/bond.
So why can’t I just purchase my debt for a fraction of the cost and cancel it myself? Simple. My lender isn’t going to sell it at that kind of discount. I’ve made every payment for however many years now, and I’ve got fewer than 5 years left until my house is paid off. Unless my lender were desperate for liquidity (which actually happened sometimes during the Great Recession, forcing banks to sell good debt at discounted prices), they’re not going to sell that for less than face value. They’d only sell it for pretty close to 100 cents on the dollar. In general, steep discounts on debt will only be found when debt is either already in default or the lender has reason to know that there is an elevated default risk (e.g., the borrower is in forbearance).
In general, standard-form consumer loans (credit cards, home mortgages, private student loans) will be sold in bulk, not on an individual basis, just because the time involved in selling 1,000 individual loans would almost never be worth it to a typical financial firm. And if you’re a borrower in good standing, i.e., in the sense that your lender isn’t likely to sell you your own loan at a discount, there’s a much easier option: just prepay the loan. The effect is almost identical if you’re not getting a discount, and most borrowers won’t.
One must also realize debt buying has dwindled greatly after the rise of the CFPB. And most collections happen on contingency anyway, basically outsourcing, hence 3rd party collections. As the original commenter pointed out aging of debt, you may have had first, secondary, tertiary, and even a quad placement before it’s sold off as a debt purchase. That means four different agencies tried collecting and if the lender is still holding the paper by that time it’s been at least a year or two if not more. Debt buyers can come into play at any stage of delinquency the more prime the more expensive. Once you get past seven years it does fall off the credit report, that didn’t stop certain debt buyers from trying to collect on, what was literally termed, zombie debt. That’s one of the reasons the CFPB cracked down and the industry cleaned up. Also because the original creditor could be held liable for illegal tactics conducted by the contingency agency or the debt buyer. Check out UDAAP. All the big banks and card issuers couldn’t take that risk so defaulted accounts only went to reputable agencies. Student loan debt was huge business too, some agencies specializing solely in that debt market. All that crashed considerably too.
Bankruptcy and restructuring attorney here.
In most countries with Western legal systems, debt is created by specific forms of contracts, most typically *notes* or *bonds*. When I bought my house, I signed two primary debt instruments: a promissory *note* saying that I’ll pay back $X at Y% rate of interest over Z months, and a *mortgage* saying that if I don’t pay the debt I promised to pay pursuant to the note, then the *holder* of the note can foreclose on the collateral for the loan, i.e., my house.
But the *holder* does not have to be the original lender! In the U.S., there’s a specific body of law that governs the *assignment* (basically, the transfer, but only by the lender) of *commercial paper*, including notes. (It’s Article 3 of the Uniform Commercial Code, which is a state law that has been adopted in all 50 states in almost identical form.) Somewhat similar laws govern the assignment of bonds, and I’m not quite as familiar with those. However, the laws standardize bond assignments to the point that if you’re so inclined, you can even buy them on most retail brokerage Web sites. There was a time when I held corporate debt in my portfolio.
Without getting too deep into the specifics, with those laws in place, the note or bond can be traded like basically any other asset, and they frequently are. My debt is to the holder of the note/bond.
So why can’t I just purchase my debt for a fraction of the cost and cancel it myself? Simple. My lender isn’t going to sell it at that kind of discount. I’ve made every payment for however many years now, and I’ve got fewer than 5 years left until my house is paid off. Unless my lender were desperate for liquidity (which actually happened sometimes during the Great Recession, forcing banks to sell good debt at discounted prices), they’re not going to sell that for less than face value. They’d only sell it for pretty close to 100 cents on the dollar. In general, steep discounts on debt will only be found when debt is either already in default or the lender has reason to know that there is an elevated default risk (e.g., the borrower is in forbearance).
In general, standard-form consumer loans (credit cards, home mortgages, private student loans) will be sold in bulk, not on an individual basis, just because the time involved in selling 1,000 individual loans would almost never be worth it to a typical financial firm. And if you’re a borrower in good standing, i.e., in the sense that your lender isn’t likely to sell you your own loan at a discount, there’s a much easier option: just prepay the loan. The effect is almost identical if you’re not getting a discount, and most borrowers won’t.
One must also realize debt buying has dwindled greatly after the rise of the CFPB. And most collections happen on contingency anyway, basically outsourcing, hence 3rd party collections. As the original commenter pointed out aging of debt, you may have had first, secondary, tertiary, and even a quad placement before it’s sold off as a debt purchase. That means four different agencies tried collecting and if the lender is still holding the paper by that time it’s been at least a year or two if not more. Debt buyers can come into play at any stage of delinquency the more prime the more expensive. Once you get past seven years it does fall off the credit report, that didn’t stop certain debt buyers from trying to collect on, what was literally termed, zombie debt. That’s one of the reasons the CFPB cracked down and the industry cleaned up. Also because the original creditor could be held liable for illegal tactics conducted by the contingency agency or the debt buyer. Check out UDAAP. All the big banks and card issuers couldn’t take that risk so defaulted accounts only went to reputable agencies. Student loan debt was huge business too, some agencies specializing solely in that debt market. All that crashed considerably too.
One must also realize debt buying has dwindled greatly after the rise of the CFPB. And most collections happen on contingency anyway, basically outsourcing, hence 3rd party collections. As the original commenter pointed out aging of debt, you may have had first, secondary, tertiary, and even a quad placement before it’s sold off as a debt purchase. That means four different agencies tried collecting and if the lender is still holding the paper by that time it’s been at least a year or two if not more. Debt buyers can come into play at any stage of delinquency the more prime the more expensive. Once you get past seven years it does fall off the credit report, that didn’t stop certain debt buyers from trying to collect on, what was literally termed, zombie debt. That’s one of the reasons the CFPB cracked down and the industry cleaned up. Also because the original creditor could be held liable for illegal tactics conducted by the contingency agency or the debt buyer. Check out UDAAP. All the big banks and card issuers couldn’t take that risk so defaulted accounts only went to reputable agencies. Student loan debt was huge business too, some agencies specializing solely in that debt market. All that crashed considerably too.
You can settle your debts for pennies on the dollar.
Example: 3-4 year old debt will expire in 7 years. You make an offer. They just might settle.
You can settle your debts for pennies on the dollar.
Example: 3-4 year old debt will expire in 7 years. You make an offer. They just might settle.
They can. I cleaned up my credit that way, once, using the amount they could sell it for & offering a little more in exchange for its removal from my credit report. You just have to get it in writing or they won’t always follow through on their end.
They can. I cleaned up my credit that way, once, using the amount they could sell it for & offering a little more in exchange for its removal from my credit report. You just have to get it in writing or they won’t always follow through on their end.
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