what happens if your debt gets bought
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As if debt wasn’t confusing and frustrating enough as it is, there are times it can be bought and sold almost like any other product. When that happens, what does it mean for you, your payments, and the progress you’ve made in paying down your debt?

Why Your Debt Gets Sold

Generally speaking, there are three reasons your debt can change hands:

  1. You’ve been delinquent on payments long enough for the debt holder to cut its losses and sell the debt to a collection agency. At that point, you no longer owe the lender, but you do owe the collection agency.
  2. Your lender has decided to offload the debt for business reasons, such as a reduction in risk. Again, you’ll owe the new debt holder, not the old one.
  3. Your debt servicer has changed. In that case, your lender didn’t sell the debt but opted to work with a different company to manage the debt. You still owe the original lender, but your day-to-day dealings of the debt, such as your payments, will be with the new servicer.

There’s one thing all of these cases have in common: Even if your debt has changed hands, you still have to repay it.

You Might Not Have to Repay a Debt that is Time-Barred

Most debts are subject to a statute of limitations. A statute of limitations is basically a deadline for a creditor to file a collection action. Once the statute of limitations has expired, the debt is referred to as “time-barred” and the debtor might not have to repay the debt.

Not all debt is subject to a statute of limitations (federal student loans are exempt, for example). State law generally determines whether a statute of limitations applies, and if so how long a creditor has to file a lawsuit. If you think one of your debts may be subject to a statute of limitations, you should consider speaking with a lawyer.

How to Stay Current on Payments When Your Debt Is Sold

One of the hardest parts about your debt being sold can be staying on top of the payments during and immediately after the transition. Even though you should receive a notice in the mail when your account changes hands, financial documents can go missing or become difficult to track, especially for renters who may move somewhat regularly.

Here are a few things you can do to avoid disruption to your payments:

  • If your lender or debt servicer offers online access to your account, register for it so you can review important account information without worrying about waiting for documents in the mail.
  • Even if you use automatic payments for your debt, periodically log into your account to check for updates. Better yet, sign up for email notifications.
  • If you signed up for automatic payments through your bank account or credit card, make sure you change the payments to go to the new debt holder or servicer. Otherwise, you could end up accidentally sending money to an entity you no longer owe money to.
  • As soon as you know that you have a new debt holder or servicer, register on that company’s website or call them to find out how to make payments so that you can be sure you don’t miss one in the transition.

The Only Way to Change Lenders

Unfortunately, you can’t do anything to stop your debt from being sold to another company or transferred to another servicer. Even after that happens, you’re locked into repayment of the debt. What you can do, however, is look into refinancing.

In a refinance, you’re basically applying for a loan to pay off your old debt. There can be a major plus to this besides getting a new lender. If you’re approved for a refinance loan at a lower interest rate than you’re paying now, that new loan could potentially decrease your monthly payments and total costs over the life of the loan, or make it easier for you to pay the debt off faster.

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But before you decide to refinance, carefully review the terms of the new loan. For example, if you refinance federal student loans, then you’re trading in your federal loans for private student loans. That means forfeiting the chance to use income-driven repayment plans should you ever need them. No matter what kind of debt you have, it’s important to consider all the ramifications of a refinance before deciding if it’s the right move for you.

Debt being sold can be a hassle at times. But if you handle the situation proactively and ensure that you don’t end up behind on payments, then you can make sure your lender’s business decisions don’t negatively impact your finances.

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