Buying delinquent debt is an ambitious project for all but the wealthiest of investors. Because the debt is purchased from companies supplying thousands of loans or credit lines, delinquent debt portfolios run between several hundred thousand dollars and several million dollars.
Definition of Deliquent Debt
Delinquent debt is more than just unpaid debt owed a second party; it is usually significantly past due and often is associated with failed collections attempts. At any stage of delinquency, this debt can be bundled with other delinquent debts and sold to a third party as a delinquent debt portfolio. The price of the debt is directly correlated to the stage of the delinquency. For example, debt delinquent for a few months will be somewhat more expensive than debt delinquent for several years.
Purpose of Purchase
Delinquent debt is purchased with the expectation of repayment through collection actions. Delinquent debt is purchased for pennies on the dollar, and consequently even returns of ten or twenty percent of the total delinquent debts can be immensely profitable. Delinquent debt is most often purchased by collection agencies.
Brokers and Intermediaries
An internet search engine inquiry for "delinquent debt portfolio" will provide hundreds of companies actively seeking to purchase delinquent debt. These companies may be buying on behalf of another company or could plan to sell the debt to another company, e.g. a collection agency. Investors and collection companies seeking to purchase delinquent debt should consider using a broker or other intermediary familiar with the process.
A final aspect to the purchase of delinquent debt is the complex federal and state laws regulating the collection of debt. Each state sets its own statute of limitations under federal guidelines. Several purchasers of delinquent debt have experienced mild legal troubles due to violations. Parties interested in purchasing delinquent debt should have a strong understanding of the legal complexities involved.