What Is A Junk Debt Buyer?

A junk debt buyer is typically a collection agency who will buy charged off debt for pennies on the dollar compared to what the debtor actually owed the creditor when the debt was charged off. Once the junk debt buyer has purchased the charged off debt, the buyer will has many options on what to do with the old accounts. Many times they will have a in house collection agency collect on the debt but they may even repackage the debt with other debt they own and resell the portfolio of accounts to another debt buyer.

Junk debt buying is a relatively new industry that really came on strong in the 1980's when the U.S. economy experienced the savings and loans crisis Many banks were going under and the FDIC insured assets were being taken over by the RTC. The RTC eventually held auctions for private companies to buy the assets in which many times the companies had no clue what they were purchasing in the charged of debt portfolios. This would begin the rise of an industry that was very profitable and experience high growth rates over several decades.

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As word spread of the profitability of the junk debt buying industry, this area experienced a explosion in growth from 2000 up to the current year. Debt was being bought and sold in different sectors including; credit cards, telecommunications, automobiles, and more. It expanded further into medical bills and personal utilities. As the economic recession continued, the overall price of charged off debt has fallen drastically. Furthermore, the economic downturn resulted in the junk debt buying industry again growing to new levels that had never been saw in previous years.

Junk debt buyers are either considered active or passive within the market. An active buyer will collect on the debt they have purchased while passive buyers outsource the work to an outside collection agency in which they will share a portion of money collected with the collection agency doing the work. Many junk debt buyers work in what is considered the secondary market. The secondary market typically consist of smaller collection agencies who buy the debt after it has been charged off and already had one debt buyer attempt to collect on the debt. Normally, the seller of the debt will wish to sell the entire portfolio together and many will want the buyer to agree to what is called a forward flow agreement. A forward flow agreement is a contract usually for at the very least 12 months, that a debt seller will place accounts with a debt buyer every month for a certain predetermined percentage of the face value of the debt.

The junk debt buying industry has been the target of many new laws to protect the debtor recently which has reduced the value of the debt and also the profitability of the industry. This has reduced how aggressive the collection agencies can pursue the charged off debtor which in return has slowed down the cash flow in what has been one of the historically profitable business sectors in recent memory.

What Is A Junk Debt Buyer?

Luke McCann is the owner of DebtCollectionQuote.com and has worked with small business owners to obtain collection agency quotes from collection agencies that provide collection agency services.