what happens if a collection company goes out of business?

[70Catalina]

Does your debt go away? I know it's too much to hope for, however, in these economic times I could see some of these collection agencies going under.

What happens to your debt if this happens? Could you contest it and have it removed when no one responds? Or would it be sold to another company?

[lrprn]

Does your debt go away? ... What happens to your debt if this happens? Could you contest it and have it removed when no one responds? Or would it be sold to another company?

If the collection company owned your debt and they thought they were going under, they would do everything possible to get another collector to buy your debt first.

Let's say for argument's sake that the collector couldn't get your debt sold before they went out of business. Then it makes sense that the debt would die with them. However, I sure wouldn't put all my eggs in this particular basket. All the original collectors has to do is reincorporate themselves as a new collection company and transfer the existing accounts over to their "new" owner. (Happens all the time.)

[frogger]

lrprn is right on track with the answer, but let me add a little to it.

If it is an agency that has bought the debt, they are going to resell it to another agency.

If it is an agency that does not own the debt, but is just collecting it, they will normally get together with another agency and let them assume the accounts. When that happens, the agency that is closing down normally gets a % of the debt for a limited amount of time.

[Pizza]

I agree with the other respondents. I wouldn't bet on the collector going under, though it may be possible. It's also quite possible their company and its assets (including your debt) would be bought by another company, similarly to Chase buying WaMu.

Something else to consider: if they 'go under' don't you mean filing for bankruptcy? Wouldn't their creditors take control of their assets just like if you or I filed a Ch. 11? Wouldn't someone end up acquiring the companies assets (your debt)?

[Worried Mom]

I wonder what happens when they are shut down by the AG. New York state has been cracking down on them and they have shut quite a few of them down. Some may be facing jail time so they won't be starting up again any time soon.

[Pizza]

I wonder what happens when they are shut down by the AG. New York state has been cracking down on them and they have shut quite a few of them down. Some may be facing jail time so they won't be starting up again any time soon.

Interesting... of course, there are so many of them that if a few are shut down it's still just a drop in the bucket. For a company to be shut down by regulators, it sounds like they are running a ring of post-BK zombie debt collection or something illigitimate like that, rather than the legitimate types of debt that most of us have.

If you have any more details on those, feel free to tell us what they were up to

[Worried Mom]

If you have any more details on those, feel free to tell us what they were up to

Pizza, I'm going to look these up for you and post them.

These are all interesting scenarios. One more question, what if you owed money to a company (not a collection company) that went Chapter 11. Do you still owe the money? My son owed Circuit City money and they are no longer in business. I wonder if someone out there is still trying to collect on that debt.

[catleg]

I refer you to this thread on the Inside ARM boards which discusses the complications resulting from the bankruptcy/liquidation of debt collector First American in Buffalo NY earlier this year.
post 1:
It looks like the debt owned by First American will be sold on March 30th in Buffalo. Looks like it has a reserve price of four million dollars.

I did not get to see how much is actually for sale but it must be a nightmare since the corporate books won't be opened.....if I read the document right.

The new owner would have to determine who had paid, what they paid, who was dead and bankrupt.....the file is being purchased as is so there are no putbacks.

This is one of the biggest cans of worms I could ever imagine seeing.

I would hope that four million dollars would buy four hundred million dollars in debt.

Even at that it would be a nightmare. I think whoever buys this will be in trouble in about twenty four months if they do not approach this with the right strategy and even with a good strategy I think there will be problems for years to come.
post 2:
This portfolio is approximately $360M. That too is unclear because there is not record of what was sold. Can't be certain if those accounts are in the master inventory. Regardless, its not worth $1.6M.

The clean up on it alone would cost someone approximately $500k.

Whoever tries this is going to have big problems.

The seller would be better served to bring someone in to clean it up. Then sell a more polished product.

and there are a couple more.

[Pizza]

These are all interesting scenarios. One more question, what if you owed money to a company (not a collection company) that went Chapter 11. Do you still owe the money? My son owed Circuit City money and they are no longer in business. I wonder if someone out there is still trying to collect on that debt.

I read that when Montgomery Wards went out of business, the debts were collected by GE Money Bank, and yes, people were paying on debts from a store that went out of business. Their cards were even turned into Wal-Mart credit cards on request so they could still use their credit line on another GE Money Bank associate.

[catleg]

Bottom line, the debt does not go away, but as it gets older and passes through more hands it is considered less and less "collectible" until it passes through the SOL. However, you can assume that somebody is always going to own it and periodically it will "wake up" on you, probably at inopportune moments (like when trying to buy a house).

[Bell30656]

I actually had a 12 year old debt resurface not long ago. The JDB had no qualms about the fact that the debt was well out of statute but was insulting never-the-less. "Regardless of the statute of limitations you still owe the debt, sir... How do you intend to pay." When I told her that I didn't she got into the "Real men honor their promises and pay their bills."

This company is also out of business and so is at least one of the JDB's that have owned it. I will bet these debts probably sell for about a 1/4 of a cent on the dollar or less. They probably still collect one or two and pay for the portfolio.