A Debt Collector versus a Debt Buyer
When dealing with debt, you may come across terms that you don’t understand. Two of these terms may be “debt collectors” versus “debt buyers”. It is important that you understand that these are two different services. However, they do both work with debt, so it may be confusing.
Understanding the Difference Between Debt Buyers and Debt Collectors
A debt collector is a third-party company that collects debts on the behalf of other companies that are owed debt. However, a debt buyer is a company that buys debts from other companies and proceeds to collect those debts themselves. Debt buyers can also be debt collection agencies, or they can seek the help from a debt collection agency.
If you find that your debt has been bought by a debt buyer then you will need to set up payments with them instead of your original creditor.
How Will You Know if Your Debt Has Been Sold to a Debt Buyer?
Your initial creditor may not tell you that your debt has been sold to a debt buyer, and they don’t have to. However, you may receive a letter in the mail signifying that a new company has purchased your debt. If you do receive a letter, then you can request verification from that company in order to ensure that you are not being scammed. They will need to provide proper documentation that shows the legality of your debt being purchased as well as your agreement to the initial debt from your initial creditor. If they are unable to provide that documentation, then they have no legal ground to collect anything from you.
What This Means for Your Credit
You will still have that debt that you need to pay off regardless of whether a debt collector or debt buyer is handling it. Your debt can be reported to the credit reporting agencies and can affect your score if your debt is in the process of being collected. Unfortunately, even if you pay the debt down your credit report will still show the negative impact that your defaulted debt has.
Understanding the Statute of Limitations
If you are responsible about your debt, then you will need to have a payment agreement set up with your debt buyer or debt collection agency. This means you have renewed your obligation to the debt buyer. You may also be restarting your statute of limitations on the debt. Your statue of limitations is a time frame that says repayment on debt is enforceable. Once that timeframe is over then the company cannot pursue you. When you enter a payment agreement then you pose the possibility of providing the debt buyer more time to go after you if you fall behind on your debt.
Is There Any Tax Liability for Cancelled Debts?
You are responsible for paying taxes on the written off value of your settlement with either a debt buyer or debt collector. If the cancelled amount is over $600 then it will be taxable as a part of your income. The form that creditors use is a Form 1099-C which signifies what they are doing with your money to the I.R.S (Internal Revenue Service).