We hear this one all the time at our office. People call my office because they have been sued by collection agencies or junk debt buyers on old credit card accounts. I tell them that we can defend the case and most likely win. They often say “But, I owe the money”
My response to that is no, you certainly don’t. Most people do not realize this, but here’s how it works with a credit card account. You obtain a credit card from the original creditor. Something happens and you lose your ability to pay so you go into default status. The original creditor waits up to 180 days and then charges off the account. (A charge off is simply an accounting term, it DOES NOT mean that you do not owe the money any longer). At this point, the original creditor has 2 choices. The first is to try to collect from you by filing a lawsuit; The second is to sell the debt to a junk debt buyer or collection agency. Often times, the original creditor chooses option 2.
When a credit card account is sold, it is sold not as an individual account, but rather, as part of a group of block of delinquent accounts. Typically, these accounts are sold for mere pennies on the dollar. A group of “good” bad debt (good defined as recently defaulted) may sell for 5 cents on the dollar. It can get sold again and again, each time at lower rates. We have seen instances where $1000 of debt has sold for .25.
So the purchasing junk debt buyer or collection agency then files a lawsuit against you. This is where “but I owe the money” comes into play. From my standpoint, you may owe the money to the original creditor at the time that you default. If they lend you money or extend credit to you, you do have an obligation to pay it back so you do “owe the money”. However, once you go into default and they charge it off, they have a choice to make. They can sue you or sell the account to a collection agency. If they sue, then maybe you do “owe the money”. But if they sell your account, then I don’t believe that you “owe the money” any longer.
Here is my reasoning. You have a credit account and are extended credit. You certainly owe the original creditor something at that point. Once you go into default, you still “owe the money” to that creditor. I believe, however, that if they sell the account, then you no longer “owe the money” because they have received adequate compensation for you default. When they sell your account they are saying that they no longer want to deal with you and they would like to be compensated for the default. Collection Agency X comes along and gives the original creditor money for your account. At that point, the original creditor is out of the picture. They have received what they deemed to be adequate and fair compensation for your default. They would not have sold it otherwise, right? So if the original creditor is adequately compensated, then you no longer “owe the money” in my opinion.
This isn’t to say that a legal interest such as a credit card account cannot be bought and sold. Those transactions are certainly legal. I am simply looking at this from a debtor’s standpoint. If you pay anything to that collection agency, if you believe that you “owe the money” , you are simply paying pure profit to that collection agency. After all, they paid only pennies on the dollar for your account. After the first $30 or so, any money that you pay to them is pure profit. Do you really “owe the money”?
