Collection Agency Terminology: Debtor, Sale of Debts

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Accounts Retrievable Systems – Debt Collection Services

A collection agency is a third-party agency, called such because such agencies were not a party to the original contract. The creditor assigns accounts directly to such an agency on a contingency-fee basis, which usually initially costs nothing to the creditor or merchant, except for the cost of communications. This however is dependent on the individual service level agreement (SLA) that exists between the creditor and the collection agency.

 

What is a Debtor?

 

The person who owes the bill or debt is the debtor. Debtors may fail to pay (default) for various reasons: because of a lack of financial planning or overcommitment on their part; due to an unforeseen eventuality such as the loss of a job or health problems; dispute or disagreement over the debt or what is being billed for; or dishonesty on the part of either the creditor or the debtor. The debtor may be either a person or an entity such as a company. Collection of debts from individual people is subject to much more restrictive rules than enforcement against a business.

 

What are Sale of Debts?

 

An increasing number of collection agencies, sometimes referred to as “debt buyers”, purchase debts from creditors for a percentage of the value of the debt and pursue the debtor for the full balance, sometimes plus “interest”. This prevents a debtor from merely defaulting or forgetting a debt. It also generates immediate revenue, albeit much reduced, for the creditor and reduces the public relations risks involved with defaulted debt collection.

 

Some states have specific laws regarding debt buying. For example, Kansas does not allow wage garnishments on purchased debt.

 

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