Junk Debt Buyer vs. Original Creditor: What Are the Differences and Why It Matters

If you are being sued for a debt, such as a credit card, personal loan, or a medical bill, one of the most important factors in determining how you should defend the lawsuit is whether or not you are being sued by the original creditor or a junk debt buyer.  This article explains the differences between these two types of debt collectors.

What is an Original Creditor?

An original creditor is the creditor than originally issued the loan or credit card, or which originally provided the services for which you owe money.  For example, if you have a credit card with Wells Fargo, then Wells Fargo is the original creditor.  If you obtain a loan from Chase, then Chase is the original creditor.  As another example, if you receive treatment at a hospital, say Northwest Medical Center, and you owe money for those services, then the hospital, in this case Northwest Medical Center, is the original creditor.  Sometimes a health care facility is owned by a larger corporation.  In Arizona, Banner Health owns many different hospitals and healthcare facilities.  So if you receive treatment at any of the facilities owned by Banner, and owe money for the services, then Banner would be the original creditor.

If you are being sued, a simple way to determine if the lawsuit is filed by the original creditor is to look at the name of the “plaintiff” in the case, which always appears on the first page of court documents.  If you recognize the name of the plaintiff as a company to which you owe money, or with which you have an account, then you are likely being sued by an original creditor.

What is a Junk Debt Buyer?

A junk debt buyer is a company that buys debt that has been deemed uncollectible by the original creditor, or charged off.  Please note that if a debt is “charged off,” it does not mean that you no longer owe the debt, it simply means that the original creditor determined the debt to be uncollectible.  The most common types of debt that junk debt buyers purchase are credit card debt, automotive loans, retail accounts, and telecommunications accounts.  Junk debt buyers make money by buying the debt for pennies on the dollar, and then trying to collect the full amount of the debt by suing consumers who originally took out the loan or incurred the debt.

Some of the junk debt buyers specialize in buying debt from original creditors.  But there is also a secondary market in junk debt, where a junk debt buyer who is unable to collect on a debt will sell it to another junk debt buyer.  It is not uncommon for a single debt to be resold like this multiple times.

There are literally dozens if not hundreds of junk debt buying companies, ranging from small private businesses to publicly traded Wall Street companies.  The junk debt buyers most active in Arizona include the following:

• Midland Funding, LLC
• Cavalry SPV I, LLC
• CACH, LLC
• Portfolio Recovery Associates, LLC
• LVNV Funding, LLC
• Asset Acceptance, LLC

What Are Some Common Issues When Being Sued by A Junk Debt Buyer?

Junk debt buyers do not buy individual debts.  Rather, they buy debt in bulk, with hundreds or thousands of loans or accounts being purchased at the same time.  This means that there is very little or no investigation that is done of any particular debt.  This leads to at least two common problems.  First, the junk debt buyer is unlikely to receive full documentation to support the debt, including the original loan documents and billing statements.  Second, by the time the debt is purchased by the junk debt buyer, or by the time a lawsuit is filed to collect on that debt, the statute of limitations may have already expired.  In fact, certain junk debt companies specialize in buying expired debt, or debt that is outside the statute of limitations.

Despite these potential problems, most lawsuits filed by junk debt buyers result in default judgments.  In other words, the person being sued never responds to the lawsuit, and the junk debt buyer gets a judgment even though the statute of limitations may have expired, or there is insufficient documentation of the debt.  This is why it is important to never ignore a lawsuit—because by ignoring it you are giving up your right to require the collection company to prove its case.

Are There Advantages If I Am Sued by a Junk Debt Buyer as Opposed to the Original Creditor?

The problems associated with junk debt buyers create several advantages that you can utilize when defending a lawsuit from a junk debt buyer.  As a first step, you should always look to see if the statute of limitations has expired.  In Arizona, the statute of limitations on most debts arising out of a written contract is six years.  However, in some cases, especially if the debt arises out of a loan or credit card agreement, a different statute of limitations may apply, which may be longer or shorter.  If the statute of limitations has expired, that is usually the easiest way to win a debt collection lawsuit.

Second, you have the right to require the debt collector to prove the amount of the debt, and that you are the one who owes the debt.  This can be difficult for the debt collector to do if it didn’t receive all the proper documentation when it purchased the debt.  In addition, even if the debt collector has some documentation, that documentation may not be admissible in court without testimony from a qualified witness, which the debt collector often will not have.

Third, you have the right to require the debt collector/junk debt buyer to prove that it owns the debt.  In legal jargon, this means that the debt collector has to prove the chain of title to the debt going all the way back to the original creditor.  Because junk debt buyers buy debt in bulk, they are often not able to prove that they purchased any particular debt.  This becomes even more difficult if the junk debt buyer did not purchase from the original creditor, but is a third, fourth, or even fifth buyer in the chain of title.

Are You Being Sued By A Debt Collector?  Get A Free Evaluation of Your Case from A Collection Defense Attorney At Yusufov Law Firm

At Yusufov Law Firm PLLC, we regularly represent individuals being sued by debt collectors and junk debt buyers.  We can provide a free no obligation evaluation of your case, and advise you of the best strategy for defending your debt collection lawsuit.  To schedule a free consultation, call us at 480-788-0098 in Phoenix/Mesa, or 520-745-4429 in Tucson, or contact us online.