Why would a collector agree to monthly payments of $40 for the next 12 years on a large charged off debt?

Question

Even if the debtor has no assets, is unemployed, and the account is over six years old. Why would a bill collector agree to waive interest fees, and accept payments this low for 12 years? Or is it possible they're up to something and just trying to get the debtor to make a payment before the SOL runs out?

I thought it was a very good deal, but others have told me it sounds to good to be true, and that I should be cautious. I don't think most collection offices even stay in business that long. What happens if they office closes before 12 years is up?

The collector is supposed to put this all in writing. So can they still sell the account or change terms?

Answer 1

Any money is better than no money.

Let's say I owe you $100 but don't pay you for five years. In fact, I never pay you at all. In the interim, you could have reinvested that $100 at 5% and had $125 after five years (approx.). But since I never paid you, you pretty much lost out.

So, instead you sell my $100 credit to another collector for $20. At least you now have $20, right? And the person you sold the rights to will come after me and try to get $40 from me. Thus, if successful, he or she will make $20 profit.

Such is the nature of business, my friend. "Scott B" pretty much hit the nail on the head.

Answer 2

Your debt is due and collectible in full at any time. If the collection agency agrees to $40 per month, they already know what they paid for your debt. Lets say your debt was $5760. If it is old and inactive, the collection agency might have purchased it from the original lender for as little as 10¢ on the dollar or $576. They only have to get you to pay $40 per month for a little over a year before they have their investment back. They will then look to sell it to someone else. It is not likely that you will get the debt forgiven. At some point, someone will take a judgement or try to seize your assets. Even if you start paying the $40 per month, unless you have a written agreement, there is nothing to stop them from going after you for the full debt.

Answer 3

Some money is better than no money on a debt that is going to roll off your report at seven years. If you make even one payment or in some cases, have an agreement for payments, that can extend for an additional seven years since last activity on the account.

And, at six years old, they may have paid even as low as 5 cents on the dollar. Now, say you go along and make payments for 8 months or so, and they have re-couped their purchase price and much of their expenses for collection. It can be awfully appealing to someone who is making $40 per month indefinitely to settle the whole account for 20% of the original debt - and they have made their sought after profit. Or, they can re-coup some monies, and now that is has seven years left to be worked, they can re-sell the debt to someone else.

Answer 4

They would do it because right now, they are getting nothing every month forever. $40 a month, or $480 a year will help to prop-up the "bad debt recoveries" on the books of the original creditor.

I work in credit and collections and while I have never had to offer anyone 12 years to paydown a debt, I have allowed some business as long as 2 years to "make good" on past due invoices.

Answer 5

Because they will still make money on it. Since the debt is 6 years old, the debt collector most likely bought the rights to collect if for pennies on the dollar. Since it has already been charged off I would simply not pay it.

Answer 6

All they want to do is to get the money started and to maintain a relaitionship with you. Once it begins it will not be long before they sell it to some other debtor and the new debtor will come after you.