Debt buyers vs debt collectors: When is it legal to pursue you for debt?

If you fall behind on a debt, the creditor might decide to unload it. That doesn't mean the debt goes away, though. Instead, it gets sold to a debt buyer. 

The debt buyer can hire a debt collector to try to get you to pay what's owed. You might get collection letters or phone calls with payment requests. 

It can sound scary, but you have certain rights that debt buyers and debt collectors can't take away. A little education could go a long way to help you advocate for yourself as you deal with either one. 

What is a debt buyer?

A debt buyer is a company that buys bad debts, usually at a steep discount. 

Creditors can sell debts once they become uncollectible. That means they've gone without payment for so long that the creditor assumes they won't ever get paid. So they sell the account to a debt buyer to get back a little of what they're owed. 

Once a debt is sold to a buyer, the original creditor washes its hands of it. If you want to try to negotiate a payment plan or resolve the debt, you'll have to deal with the debt buyer because they now legally own the debt. 

Debt buyers make money when they collect on what's owed. For example, if a debt buyer purchases a $1,000 debt for $50, they gain a $950 profit if the debtor pays what's owed in full. 

What is a debt collector?

Debt collectors are agencies or individuals (including debt attorneys) that collect unpaid debts. Debt buyers contract with debt collectors to help recover unpaid debts. 

Sometimes a debt buyer and a debt collector are the same company, but not always. A debt buyer might hire a collection agency and pay fees or commissions each time they collect on an unpaid debt. 

Debt collectors do the groundwork to get a debtor to pay. That usually means they send letters, texts, and emails or make phone calls to request payment. 

Is it illegal for a collection agency to buy your debt and come after you?

It's not against the law for a debt buyer to purchase unpaid debts. Debt buying is a common practice, as is debt collection. However, debt buyers and debt collectors must follow state and federal laws when they try to collect payment. 

When is a debt still collectible? 

In general, debts can still be collected if the statute of limitations hasn't expired. The statute of limitations is the amount of time that someone can legally come after you for a debt.  

Each state has a statute of limitations for different types of debt. For example, a debt collector might have three years to collect unpaid credit card debts but seven years for medical debts. 

The clock usually starts to tick down on either:

• The date the last payment was made to the debt

• The date you first missed a payment

Technically, your debt never goes away. You still owe it. But once the statute of limitations expires, no one can sue you for it. If they do, you could argue to the judge that the time for a lawsuit has passed and ask the judge to throw out the lawsuit. 

It's possible to restart the clock if you make a payment to the debt or a promise to pay. Debt collectors know this, and they might try to coax you into making a partial payment or a verbal agreement.

Key differences between a debt buyer and a debt collector

The main difference between a debt buyer vs. debt collector is who owns the debt. 

• Debt buyers own the debts they purchase. 

• Debt collectors don't own the debts they collect.

Legally, debt collectors are subject to the Fair Debt Collection Practices Act (FDCPA). 

This federal law governs what debt collectors can and can't do or say. The FDCPA doesn't cover business debts or debts owed to the original creditor. Debt buyers and collectors are also subject to state debt collection laws. 

How do debt collectors and debt buyers make money?  

Debt buyers get paid when the debts they've purchased get paid. The debt buyer then pays the debt collector its fee if it's a separate agency. 

Obviously, debt buyers (and collectors) make the most money when debtors pay in full. It's possible, however, to resolve debt for less than what you owe. 

How debt buyers and debt collectors could affect you

Your credit standing

Unpaid debts can hurt your credit, but the impact isn't uniform. For one thing, you might know it, but you have many different FICO scores and they don’t all treat debt the same way. Although the FICO formula is updated regularly, not all lenders use the most current version. 

Here's how collections affect different FICO scores. 

The best way to know if a collection account hurts you is to view your credit reports and scores. You can get a free copy of your credit reports weekly from each credit bureau by visiting AnnualCreditReport.com. Equifax and Experian also let you check your credit score for free monthly. 

Your life

Aside from credit implications, it may be unpleasant to deal with debt collectors. Legally, they're allowed to contact you about unpaid debts. The law also allows debt collectors to sue you for unpaid debt in civil court. 

As a consumer, the FDCPA gives you the right to:

• Ask a debt collector not to contact you. Keep in mind that if you do this, you might not hear from them again until they file a lawsuit against you. If you want to keep the lines of communication open to work out a solution, consider this action carefully.

• Request validation of debts you're contacted about.

• Dispute a debt if you don't believe you owe it.

• Sue a debt collector if you believe they violated your rights.

The FDCPA is meant to be a shield against bad behavior on the part of debt collectors. 

What are the things debt collectors can never do?

Debt collectors must follow the law when it comes to how they contact you about debts and try to collect them. The FDCPA says that a debt collector can't:

• Contact you before 8 a.m. or after 9 p.m unless you agree to it

• Contact you at work if you tell them you're not allowed to receive calls

• Contact you by email or text if you ask them to stop

• Call more than seven times in a seven-day period or within seven days after they talk to you by phone about a debt

• Send private messages on social media if you tell them to stop

You're also protected against aggressive, unfair, and deceptive practices. For example, a debt collector can't:

• Threaten you physically

• Use obscene language or profanity

• Lie to you about the debt

• Pretend to be an attorney, government official, or member of law enforcement

• Tell you that you'll be sued or arrested unless they plan to take legal action against you

• Try to collect more than what's owed unless the law permits them to charge interest or fees

• Deposit post-dated checks early

• Air information publicly about your debts, outside of a civil court filing

Debt collectors can report the debt to the credit bureaus, but the information they share has to be accurate. The debt can't be reported unless they've either spoken to you about the debt or sent a notice about it, allowing a reasonable window of time for delivery. 

If a collection account shows up on your credit but the information is inaccurate or wrong, you have the right to dispute it. You'll need to file a dispute with the credit bureau that reports the information, which you can do online.

The credit bureau must investigate your claim promptly. If an error is found, the credit bureau must remove or correct it on your credit reports. 

What to do if you're contacted by a debt buyer or debt collector

The FDCPA requires debt collectors to give you certain information about debts they're trying to collect. This is usually sent in written form as their first communication or within five days of making first contact with you. 

The debt notice should include: 

• A statement that the notice is from a debt collector

• Your name and address and the debt collector's name and address

• The name of the creditor and the account number

• An itemized amount of the debt owed that includes interest, fees, payments, and credits

• The current amount of the debt

• Instructions on how to reply to the debt collector

• An end date for a 30-day period in which you can dispute the debt

If a debt collector doesn't give you timely notice, you have the right to file a complaint with the Consumer Financial Protection Bureau (CFPB). 

Once you get a debt letter, review it carefully. If you don't believe the debt is yours or think the details are inaccurate, you can dispute it. You have 30 days to file a dispute with the debt collector. 

The debt collector has to verify the debt and provide you with the name and address of the original creditor. No collection actions are allowed while the dispute is in progress.

If you do nothing, then the debt collector can continue collection actions. That could include a credit card debt lawsuit. 

So when you get a debt letter in the mail (or a phone call from a debt collector), don't panic. Know your rights and use those rights. And consider talking to a debt expert about what options you have to clear up collection accounts.