how can a company purchase debt for less money than what the debt is worth?

Question

Recently heard of a church purchasing $3.3 million in resident debt for 15k and then cancelling all of it.

In: 9

Answer 1

Banks are usually the original debt owners. You borrow money and pay it back to the bank. If you aren’t paying it back, then what the bank can do is sell off your debt to the highest bidder for a reduced price to a collection agency or another bank. The new owner will then try to get you to pay up. The original bank gets what it thinks is a good deal by guaranteeing a fraction of the money, and the new owners make their living by trying to collect more of the debt than they paid for it.