Many bankruptcy clients are somewhat surprised to discover that their unpaid debt is a business commodity like any other good or service and that it may not only be assigned to a third-party collection agency to collect the debt, but it may also be sold outright to another third-party business. Whenever a consumer is contacted by a collection agent attempting to collect a debt, it is not always entirely obvious who the creditor of record is at the time of this contact.
It is important to know that the Fair Debt Collection Practices Act (“FDCPA”) does not apply to an original lender, its employees or agents. The purpose of Congress in enacting the FDCPA was to protect debtors from third-party debt collectors. The FDCPA defines an original lender as the person or business entity that first extended credit.
However, if an original lender uses a different name when collecting a debt, thus making it appear that some third party is attempting to collect the debt, this creditor and original lender is not exempt from the FDCPA.
The FDCPA defines a debt collector as any person who regularly collects debts owed to other parties. A “debt collector” may be collection agencies and attorneys that collect debts on behalf of other parties. Some debts may be sold outright to these entities or they may simply be retained for collection purposes.
Typically. Creditors will maintain ownership of the debt and continue to try to collect the debt or retain the services of a collection agent to collect it when the statute of limitations for collecting the debt is not close to expiring. In this situation, the collection entity is simply an agent of the creditor who remains the obligee to which the debt is legally owed. Debtors are free to interact and negotiate with the original creditor. If the debtor is sued in this situation, the plaintiff would be the original creditor.
Once the statute of limitations is close to expiring for a certain debt, the original creditor may sell or assign the debt to a third party. At this time, a debtor may no longer negotiate with and pay the debt’s original obligee. If a lawsuit is filed, the assignee of the debt would be the party-in-interest and the plaintiff in the case, not the original creditor. In sum, debts may also be sold or assigned to a third-party, usually for just a few cents on the dollar, in which case the third-party becomes the owner, and therefore the legal obligee, of the debt.
Theron Morrison and the attorneys at the Morrison Law Group have helped 8,000 people file bankruptcy and gain a fresh start. We have helped over 20,000 Utah residents deal with all types of financial difficulties caused by all types of events. Talk to the Morrison Law Group about your Chapter 7 or Chapter 13 bankruptcy options. Call 801.456.9933 today to schedule a FREE consultation. We have locations in Ogden, Logan, Sandy, and St. George to serve the residents of the counties of Weber, Cache, Salt Lake, Utah, Morgan, Davis, Washington, and surrounding areas.