If you have outstanding debt, your creditor (the individual or company you owe money to) may choose to sell your debt to another company, such as a debt collection agency or debt purchaser, who will take over and pursue you for the money owed.
However, if you’re already struggling to manage your debt, this can bring about more questions than answers. For example, do you still have to pay the debt if it’s been sold to another company? And will you be informed that your original creditor has sold your debt?
This article will cover everything you need to know about sold debts, from what a debt collection agency is to how much your debt can be sold for.
Why was my debt sold to another company?
There are various reasons why a creditor might sell a debt to another company but, in most cases, it’s because they simply don’t have the time or resources to continue chasing you for payment.
The main role of a creditor is to lend and collect money – not chase it. Because of this, it’s often more time and cost-effective for lenders to sell your unpaid debt to an external company that specialises in collecting unpaid debts.
There are also additional costs involved in chasing unpaid debts, especially if legal action is required, so by passing the debt on to a professional debt collection company, they can save time and money. Some third parties even return a portion of the principal debt to the lender.
What is a debt collection agency?
Finding out your debt has been sold to another company can be daunting, but knowing what a debt collection agency is and what it does can help put your mind at ease.
Sometimes referred to as a debt recovery company, debt collection company, or credit control company, a debt collection agency specialises in collecting debts that your original creditor was unable to recover.
Most debt collectors work under debt collection agencies and will be paid a percentage of your total debt (between 25% and 50%) by your creditor for successfully recovering the money owed.
Is a debt collector the same as a bailiff?
There is a common misconception that debt collectors and bailiffs are the same but, despite carrying out similar duties, there are some key differences you should be aware of.
The biggest difference is that a debt collector doesn’t have any special legal powers to get you to repay what you owe whereas a bailiff does. This means they have the same legal rights as your original creditor and, while they often resort to threatening you with court action, they can’t legally take you to court to force you to repay your debt.
Additionally, while a bailiff will make a list of items they can seize when they visit your home, a debt collector can’t take items from your property and can only ask you to pay what you owe.
Remember, if a debt collector or bailiff knocks on your door, you must ask for a valid ID and verify their identity before giving them permission to enter.
When can a debt be sold to another company?
There is no minimum length of time or number of missed payments required for your debt to be sold to another company and a third party can get involved as soon as you default on your payments.
This applies to most types of consumer debt, including:
- Personal loans
- Payday loans
- Overdrafts
- Credit cards
- Store cards
- Catalogues
Can my creditor sell my debt if we have a repayment plan in place?
Unfortunately, most credit agreements contain a clause stating that your creditor can sell your debt whenever they wish.
This clause, which you would have been asked to read and sign before borrowing money, gives your creditor the right to sell your debt to a third party regardless of how many missed payments you have.
So, even if you agreed to repay the debt in instalments after missing a payment, this won’t automatically stop your creditor from selling your debt the next day if they were to change their mind and decide they wanted to do so.
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What happens when a debt is sold to another company?
When your debt has been sold to another company, you should be notified by your original creditor and the debt collection agency that has taken over your debt.
Here is a breakdown of the various steps you can expect when your debt is sold to another company:
Receiving a letter in the post
The first time you’ll be informed that your debt has been sold to another company is when you receive a letter in the post from your original creditor and the debt collection agency it’s been passed on to.
Once you’ve received a letter, it’s important to respond as soon as possible, stating whether you agree or dispute the claim.
The purpose of the letter is for the debt collection agency to inform you that they’re now the legal owner of your debt. This can happen regardless of whether you ignored the debt or had an existing repayment plan in place.
Receiving follow-up phone calls
Most debt collection agencies will continue to contact you until you respond or agree to repay what you owe. This usually involves calling you and leaving messages until you answer.
When this happens, you should respond in a calm and respectful manner and avoid reacting angrily or in the heat of the moment.
Some debt purchasers will threaten you will legal action, but it’s important not to panic or feel pressured into a repayment agreement you aren’t comfortable with.
The company in control of the debt must also follow the same rules as your original creditor, which means they can’t add interest or charges unless it’s clearly outlined in your original credit agreement that they can do so.
Setting up a repayment plan
Usually, the first thing a debt collection agency will do when they get in touch with you is ask if you can repay the debt in full.
This can be unnerving, but the purpose of asking this is purely to get a clearer picture of your financial situation and how much you can realistically afford to contribute towards the debt.
The best thing you can do at this stage is negotiate a repayment plan that allows you to chip away at the debt in regular instalments. Never feel pressured into a repayment plan that could plunge you deeper into financial hardship.
Can I dispute a debt sold to another company?
Most unsecured debts are regulated by the Consumer Credit Act (1974), which means they can be legally sold if you stop making payments as outlined in your original credit agreement.
Even if you’ve come to an agreement over how to repay the debt or agreed to make regular payments towards what you owe, your creditor can still choose to sell your debt to another company at any time if they wish.
The only exception to this rule is if your creditor follows the Standards of Lending Practice which sets the benchmark for good lending practice in the UK and outlines the ways in which registered lenders should deal with vulnerable customers.
For example, if you have a history of poor mental health or a critical illness that prevents you from being able to make payments in full or on time, your debt should not be sold to another company.
How much was my debt sold for?
The amount your debt is sold for depends on your unique circumstances. For example, if you’ve ignored the debt for several years and it’s nearing its limitation period, it will likely be sold for very little. However, if the debt is relatively new and you’ve already repaid a portion of it, it will have been sold for considerably more.
Some creditors sell debts for as little as 25% of their total value because there’s no guarantee the debt collection agency will be able to recover the money owed.
However, it’s unlikely that you’ll ever be told how much your debt was sold for as this constitutes a commercial agreement between the seller (your creditor) and the buyer (the debt collection agency).
This may sound unfair, but the price your debt is sold for will have little to no impact on you as you’ll still be expected to repay the total amount owed.
Can a debt collector take me to court?
When a debt collector has been unsuccessful in recovering a debt, they can take you to court on behalf of your original creditor. However, they must follow a certain procedure and issue you with a warning letter or default notice before seeking legal action.
The next step will usually involve serving you with a County Court Judgement (CCJ), which is a legal demand for payment and indicates that the court believes you should pay what you owe according to their terms.
The court will then decide how much is owed, how payment should be made, and if any extra costs should be added to your total balance, such as interest or legal fees. CCJs can be issued forthwith (where the full balance is due immediately) or in instalments (where you make regular payments towards the debt).
Will my debt being sold affect my credit rating?
When your debt is sold to a debt collection agency, it will be recorded on your credit report as a default. This essentially means that you have missed payments and, as a result, broken the terms of the original credit agreement.
Even if you end up repaying the debt, it will remain on your credit file for six years. During this time, your credit score will be damaged and you’ll struggle to access most forms of credit, such as a loan, mortgage, bank account, and phone contract.
If my debt was sold for less, can I pay less?
Because most debts are sold to debt collection companies for less than what they’re worth, you may be wondering if this means you can pay less. Unfortunately, even if your debt is sold to another company for less, you’ll still be expected to repay the full amount owed.
The only reason a debt is sold for less than what it’s worth is because it’s the only way a debt collection agency can buy it and still make a profit. The debt purchaser is already taking a large risk by buying the debt for a fraction of the price as there’s no guarantee they’ll be able to get you to pay it – especially if your creditor couldn’t.
So with the debt collection agency buying the debt for less and you still repaying the full amount, they can profit from the sale.
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Can a debt collection agency add interest and charges?
When a debt is sold to a debt collection company and is marked as a default on your credit record, your original creditor will usually stop adding interest or charges.
However, this depends on the situation and a debt collection agency can continue adding interest and charges if there is no clause in your credit agreement stating otherwise.
Furthermore, your original creditor can continue adding interest and charges while a debt collection agency contacts you if the purchase hasn’t been made and they still have full control over your debt.
Conclusion
Finding out your debt has been sold to another company can be worrying but, in most cases, nothing will change in terms of how much you owe. All it means is that your creditor has decided another company would have a better chance of recovering the money owed. So, if you’re wondering: ‘If a debt is sold to another company, do I have to pay (UK)?’, the answer is yes.
Usually, you’ll be told when another company purchases your debt and if any aspect of your original credit agreement has changed. However, this is unlikely, and the only thing that will change is who you should make payment to.
There are various debt solutions available to help you repay your debt, regardless of who you owe. The sooner you seek expert debt advice and agree to address your problem debt, the sooner you can fix your financial situation for good and avoid legal action.
