A defaulted account is often sold rather than pursued by the original lender. Ownership of the debt transfers, and with it the economics of what happens next.
Selling converts an uncertain recovery into cash
A lender holding non-performing accounts faces uncertain recoveries spread over years, alongside the cost of collections staff and capital held against the exposure.
Selling the portfolio produces an immediate known amount and removes the accounts from the balance sheet entirely.
Prices are a fraction of face value, reflecting how much the buyer expects to recover and how long it will take, which is why old debt sells for very little.
The buyer's economics differ fundamentally
Having paid a fraction of the balance, a purchaser recovering a substantially smaller sum than the face amount can still profit on the account.
This is the structural reason settlement offers are more readily accepted by purchasers than by original lenders, whose accounting treats the full balance as the reference point.
Purchasers also work portfolios statistically, pursuing the accounts most likely to pay and applying much less effort to the rest.
The debt itself does not change
A sale transfers the existing obligation. The amount owed, the terms and any defences the borrower had against the original lender generally carry across.
Interest and charges may continue to apply only if the original agreement permits it, and many purchased accounts are held without further interest.
Notice of the assignment is normally required, and a borrower is entitled to ask for evidence that the party demanding payment actually owns the account.
Limitation periods run independently of ownership
Most jurisdictions set a period after which a debt cannot be enforced through the courts, running from the last acknowledgment or payment.
A sale does not restart that clock, but a payment or written acknowledgment by the borrower generally can, which is why the effect of contact matters.
Rules on what constitutes acknowledgment and how long the period runs differ substantially between jurisdictions and change over time.
Conduct is regulated even after transfer
Purchasers are typically subject to the same rules as original lenders on contact frequency, accuracy of information and treatment of borrowers in difficulty.
Disputed accounts must generally be investigated and collection paused while that happens, and credit file entries must reflect the original default date rather than the sale.
Anyone dealing with a purchased debt should take free advice from a regulated debt guidance service before making payments or acknowledgments.