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  • 2017-06-02 (xsd:date)
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  • Are You Exempt from Paying Sold-Off Debt? (en)
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  • One common form of urban folklore is the legal talisman text, typically a message informing readers that they can gain significant advantage simply by invoking some little known legal stratagem that will protect them from penalty or punishment they might otherwise experience. Social media users were exposed to another example of this form in 2017, one which (spuriously) advised them they were not legally obligated to pay any debts that creditors had sold off to third parties: Debt can indeed legally be sold or assigned, and a creditor's doing so does not relieve the debtor of obligation to pay — otherwise, the debt purchasing industry would not exist. Typically, a creditor sells a debt for a fraction of its value: For example, a $10,000 debt might be sold for $2,000 to a debt purchaser/collector, with the creditor reporting that $2,000 as income and writing off the remaining $8,000 as unrecoverable debt. The debt purchaser is then entitled to collect any or all of that $10,000 amount from the debtor — the fact that the original creditor has written off some or all of the debt does not remove the debtor's obligation to pay the full amount. (It's true that in such circumstances the debtor no longer owes anything to the original creditor, but the debtor is still legally obligated to pay whoever bought up their debt.) Likewise, it is not true that a creditor's selling off a debt to a collection agency means negative information about that debt must be removed from a consumer's credit report. Any legally incurred debt, regardless of who currently holds the right to collect it, may be validly reported to, and listed by, credit reporting agencies such as Equifax, Experian, and TransUnion. This spurious advice may have one beneficial aspect to it, although it is incidental in nature. Consumers have the right to challenge erroneous entries on their credit reports, a process that requires credit reporting agencies to either validate the challenged information in a timely manner or correct their records: It's possible that consumers can abuse this process to prompt the removal of otherwise valid debt information from their credit reports simply by challenging it — if the debt is old enough and/or has since been sold off, it may be the case that neither the original creditor nor the debt purchaser can produce documentation validating the debt, or that they may not consider it worth their while to bother doing so (especially if the debt is relatively small), or that they may be unable to address the issue within the timeframe prescribed by law. In such cases (i.e., when challenged entries are not validated) credit reporting agencies are obligated to remove the information from their reports, but that process has nothing to do with whether or not the debt has been sold. A valid debt may remain on your credit report no matter how many times it has been sold or resold; there is no legal basis for disputing it and demanding its removal simply by claiming NO CONTRACT. Or, as one reddit contributor put it: (en)
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