Have you ever wondered what happens to your debt when companies sell it to other businesses? This process is called assignment of debt, and it's more common than you might think.
Understanding how it works can help you protect your credit score and handle debt collectors better.
What is Assignment of Debt?
Assignment of debt is when one company transfers your debt to another company. Think of it like passing a ball from one player to another. The original company (called the assignor) gives your debt to a new company (called the assignee). Once this happens, the new company becomes the legal owner of your debt.
This transfer can happen for many reasons.
Sometimes companies sell debts because they need quick cash. Other times, they simply don't want to deal with collecting the money themselves. Banks, credit card companies, hospitals, and utility companies often sell debts to collection agencies.
How Does Assignment of Debt Work?
The process is usually simple for the companies involved, but it can be confusing for you as the debtor.
Here's how it typically works:
- You owe money to Company A
- Company A decides to sell your debt
- Company B buys your debt from Company A
- Company B now owns your debt and can collect from you
- You should receive a notice about the transfer
The new company gets all the rights to collect your debt. This means they can call you, send letters, and even take legal action if needed. However, they must follow the same rules and laws that applied to the original company.
Types of Debt That Get Assigned
Many different types of debt can be assigned to other companies:
Credit card debt is probably the most common type of assigned debt. When you stop paying your credit card bills, the card company might sell your debt to a collection agency after a few months.
Medical debt often gets assigned when hospitals and doctors' offices can't collect payments. They sell these debts to companies that specialize in medical collections.
Personal loans from banks or online lenders can also be assigned if you fall behind on payments.
Utility bills for electricity, gas, water, or phone services sometimes get sold to collection companies.
Student loans can be assigned, though federal student loans have special rules that make this less common.
Your Rights When Debt Gets Assigned
You have important rights when your debt gets assigned. The Fair Debt Collection Practices Act (FDCPA) protects you from unfair treatment by debt collectors.
Right to validation: You can ask the new company to prove they own your debt. They must show you paperwork that proves the assignment is real.
Right to accurate information: The debt collector must give you correct information about how much you owe and to whom.
Right to dispute: If you think the debt isn't yours or the amount is wrong, you can dispute it in writing.
Right to stop contact: You can tell debt collectors to stop calling you, though they can still send letters and take legal action.
Right to fair treatment: Debt collectors cannot harass you, threaten you, or lie to you about the debt.
How Assignment of Debt Affects Your Credit Score
Assignment of debt can impact your credit score in several ways. Understanding these effects helps you make better decisions about handling assigned debts.
When your debt gets assigned, the original company usually reports it as "charged off" or "sold" on your credit report. This negative mark can lower your credit score significantly. The new company might also report the debt on your credit report as a collection account.
Having both the original debt and the collection account on your credit report can be especially harmful. This is called "double reporting," and it's not always legal. You should check your credit reports regularly to make sure this isn't happening to you.
The good news is that paying off assigned debt can help improve your credit score over time. Some collection companies will agree to remove the negative mark from your credit report if you pay the full amount.
This is called a "pay for delete" agreement.
Strategies to Protect Your Credit
There are several ways you can protect your credit when dealing with assigned debt:
Validate the debt first: Always ask the collection company to prove they own your debt before you pay anything. They should provide documents showing the assignment is legitimate.
Check your credit reports: Get free copies of your credit reports from all three credit bureaus. Look for any errors or signs of double reporting.
Negotiate payment terms: Many collection companies will accept less than the full amount owed. You might be able to settle the debt for 30-50% of the original balance.
Get agreements in writing: If a collection company agrees to remove negative marks from your credit report, make sure you get this promise in writing before you pay.
Pay strategically: Consider which debts will have the biggest positive impact on your credit score if paid off first.
Know the statute of limitations: Old debts might be past the legal time limit for collection. Research your state's laws about debt collection time limits.
Common Mistakes to Avoid
Many people make costly mistakes when dealing with assigned debt. Here are some important things to avoid:
Don't ignore the debt: Pretending the debt doesn't exist won't make it go away. It's better to deal with it directly.
Don't pay without validation: Always make sure the debt is real and that the company has the right to collect it before you pay anything.
Don't restart the clock: Making any payment on very old debt might restart the statute of limitations, giving collectors more time to sue you. For example, a medical debt in California is 4 years. If you pay nearing that limitation, collection agencies can pursue the debt again which can turn into a debt lawsuit.
Don't give bank account information: Be careful about giving collection companies access to your bank accounts. They might take more money than agreed upon.
Don't believe threats: Collection companies cannot have you arrested or garnish your wages without going to court first.
Steps to Take When Your Debt Gets Assigned
If you receive notice that your debt has been assigned, follow these steps:
- Request validation of the debt within 30 days of first contact
- Review your credit reports for accuracy
- Document all communication with the collection company
- Consider your options for payment or dispute
- Negotiate terms if you decide to pay
- Get agreements in writing before making any payments
- Follow up to ensure agreements are honored
Conclusion
Assignment of debt is a normal part of how the financial system works, but it doesn't have to ruin your credit. By understanding your rights and taking the right steps, you can protect yourself and even improve your credit score.
Remember that you have power in these situations. Collection companies want to get paid, so they're often willing to negotiate. Use this to your advantage by validating debts, negotiating payment terms, and getting agreements in writing.
The key is to stay informed, act quickly when you receive notices, and never ignore assigned debt. With the right approach, you can turn a potentially negative situation into an opportunity to improve your financial health and credit score.