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Hey Occupy Wall Street! Will you buy my debt?

A protester affiliated with Occupy Wall Street stands outside U.S. Bankruptcy Court on September 17, 2012 in New York City.

You could call them the Robin Hoods of secondary debt markets.

It’s been one year this week since an Occupy Wall Street group started buying thousands of people’s personal debt and dissolving it.

Almost $15 million worth so far. And it’s all made possible by the little-known business of buying bad debt.

When you have debt, and the debt collector comes calling, there are basically two kinds of letters you can get.

One says simply: Pay us.

The other can come from Andrew Ross and his fellow members of the Strike Debt group.

“What we do is we go in and buy the debt, and instead of collecting on it, we abolish it,” says Ross, an NYU professor and author of the book Creditocracy“And we write to the people who are involved, the debtors, and we tell them they’re off the hook.”

Ross says that $15 million worth of mostly medical debt only cost about $400,000 to buy. That’s because the world of debt collection has changed dramatically.

Creditors, like your credit card company, used to just collect from you or pay someone else to do it. They still do that. But now, says Laura Udis of the Consumer Federation of America, they also sell your bad debts to third-party debt buyers.

“And in those cases, there is no continuing business relationship between the creditor and the consumer. And that changes the entire debt collection picture,” she says.

Debt buyers purchase seemingly-uncollectable debt for an average of $0.04 on the dollar, according to the Federal Trade Commission. They make money by coming after you for the full amount. The FTC recently studied the portfolios of nine of the ten biggest debt buyers.

“Those accounts had a face value of $143 billion dollars,” says the FTC's Christopher Koegel, “The debt buyers that we studied spent about $6.5 billion to acquire them.”

That’s a pretty good profit margin – if they collect the full amount. Andrew Ross of Occupy Wall Street says he wants people to know they can negotiate with debt buyers when they get that call or letter in the mail.

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LarryD, not entirely correct. The Fair Credit Reporting Act has provisions to allow debtors to challenge collectors on the validity of a debt.

At a minimum, anyone who is being asked to pay a debt should request, in writing, that the debt be verified. The collector has a limited amount of time to respond and verify the debt. This is a simple answer but I recommend folks become familiar with their rights under the FCRA and use them accordingly.

Creditors, like your credit card company, used to just collect from you or pay someone else to do it. They still do that. But now, says Laura Udis of the Consumer Federation of America, they also sell your bad debts to third-party debt buyers.

“And in those cases, there is no continuing business relationship between the creditor and the consumer. And that changes the entire debt collection picture,” she says.

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Once the debt is sold to these third-party debt buyers, it is almost impossible to rehabilitate your credit. That means if you leave a large unpaid bill (like from your phone company), they will likely sell it off within six months and report your account as bad debt. Then the debt collector comes after you. Even if you pay the debt collector, your original account from the phone company will never reflect payment, and your credit is tarnished for next 5-7 years. Not everyone is a deadbeat and sometimes debts cannot be paid in a timely manner. The third-party debt collection system encourages non-payment as paying these debt collectors still leaves the original negative report intact with no method to fix it (you cannot pay the original creditor, even if you wanted to and had the money, as the account is no longer in their possession).

I think your credit report will shows negotiated debt as the same as a default on the debt.

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