Can Private Citizens Buy Debt? Understanding the Legal and Practical Aspects

Yes, private citizens can indeed buy debt, much like debt collectors do. This practice has been growing in popularity, with many individuals looking to purchase debts to either collect them or add to their investment portfolios. However, successfully buying and managing debt involves a nuanced understanding of legal regulations and the nature of the debts involved.

Types of Debt

When it comes to private citizens buying debt, various types of unsecured debts are commonly purchased. These include:

Unsecured credit card debt Medical bills

However, purchasing secured debts, such as mortgages, is more complex and typically requires the lender's approval. While it is theoretically possible, the complexity and potential legal hurdles make it less common.

Minimum Amount of Debt

The minimum amount of debt that can be sold varies widely. Debt portfolios can range from a few hundred dollars to several thousands, depending on the seller and the nature of the debt. Debt buyers often purchase debt in bulk, which means individual debts might be bundled together. This bundling can make it difficult to specify a minimum amount for each debt.

Legal Considerations

Buying and collecting debt is heavily regulated by laws such as the Fair Debt Collection Practices Act (FDCPA) in the U.S. Buyers must adhere to these regulations to avoid legal issues. Failure to comply with these laws can result in significant penalties and fines.

Due Diligence

Before purchasing debt, thorough due diligence is essential. This includes:

Understanding the legitimacy of the debts Evaluating the debtor's ability to pay Assessing any potential legal implications

These steps help ensure that the investment in debt is worthwhile and minimizes the risk of legal complications.

Historical Context and Current Landscape

The landscape of debt buying has evolved significantly. Before 2011, the market was different:

The banks would sell debt to large buyers who would then work the accounts and resell any uncollected debt to debt collectors. After 2011, when the Consumer Finance Protection Bureau (CFPB) was established, banks were no longer allowed to resell debt learned from the Dodd-Frank Act.

Currently, there are few avenues for purchasing new debt, and the remaining debt is often of lower quality. Some sources of debt now include:

Auto deficiency loans after car repossessions Delinquent payday loans and checking account overcharges C and D level consumer lenders Out-of-statute debt from before 2006 that is not legally enforceable

The quality of these debts can vary, and buyers need to be cautious to avoid being ripped off.

Rules of the Market

In this current market, the rule of thumb is "buyer beware." There are many unscrupulous brokers who can add charges to the amounts due, offer debts from questionable sources, and make it impossible for buyers to evaluate the accounts.

Debt brokers often add money to the amounts that are actually due, broker debt from questionable sources, and mask basic data like the debtors' names and addresses. Buyers have no way of knowing the history of the debt they are purchasing, such as how many times it has been sold before.

To avoid scams and legal issues, it is highly recommended to partner with experienced individuals in the field or to conduct extensive due diligence before making a purchase.

While there are still opportunities to buy and sell debt, the market is more complex and challenging than it used to be. Educational and cautionary measures are key to navigating this space successfully.