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

So a company who issued the loans or the bills owns the debt but that doesn’t mean they have the money. If people aren’t paying, you have to go to collections and try to force them to pay. This takes time and money and carries the risk that the person will just declare bankruptcy and you’re out of the money entirely then. Some company may decided that it’s not worth the time, money, and risk to try to collect all those debts. So they will sell the debt to someone else who is willing to try to collect it (or in this case, just cancel it). Sometimes for a company it makes more sense to take a smaller guaranteed amount of money, then to bet on a risky higher payout.