Is it legal for a credit card company to sell your delinquent debt?

Right now, credit card rates are sitting at their highest point in recent history. As a result, credit card balances are ballooning — the average cardholder owes nearly $8,000 currently — and payment delinquencies are climbing. Nearly 9% of credit card debt was considered seriously delinquent as of the third quarter of 2024, a clear sign that many Americans are having serious issues with managing their credit card debt. 

Being late on your credit card payments can have big repercussions for your finances, including credit score damage, late fees or penalty interest rates. Those aren't the only penalties you can face when your card debt is delinquent, either. If you fall too far behind on your credit card bills, you could face debt collection attempts from companies you've never even done business with. When this happens, it's an indicator that your credit card company has sold your debt to another company to try and recoup what's owed. 

Can credit card companies legally sell your debt to other entities, though? It's important to fully understand the answer to that question if you want to make the right decision on how to approach your delinquent credit card debt.

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Is it legal for a credit card company to sell your delinquent debt?

The short answer is yes, credit card companies have the legal right to sell delinquent accounts to third-party debt buyers. This practice is explicitly permitted under federal law and regulated by the Fair Debt Collection Practices Act (FDCPA) and other consumer protection statutes. When you sign a credit card agreement, you essentially acknowledge that your debt can be sold or transferred to another entity.

Credit card companies typically sell debts that are severely delinquent (usually 180 days past due) to debt buyers at a significant discount. This practice allows them to recover some portion of the outstanding balance while removing the delinquent account from their books. When a credit card issuer sells a delinquent account, they transfer all their rights to collect the debt to the purchasing entity, including the right to pursue legal action if necessary. The debt buyer then becomes the legal owner of the debt and has the right to collect the full amount owed. 

That said, the sale of any debt must comply with specific legal requirements, including proper documentation of the debt's chain of ownership and accurate transfer of account information. The debt buyer must be licensed in states where required and must follow all applicable federal and state debt collection laws when attempting to collect the purchased debt.

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What happens after my delinquent credit card debt has been sold?

Once your credit card debt is sold, you'll typically receive a notice from both the original creditor and the new debt owner. The debt buyer will attempt to collect the full amount owed, even though they likely purchased the debt for a fraction of its face value. As part of this process, they may:

• Contact you directly to arrange payment
• Report the debt to credit bureaus under their company name
• Attempt to negotiate a settlement for less than the full amount
• Pursue legal action if collection attempts are unsuccessful
• Potentially resell the debt to another collection agency

Your consumer rights remain protected under the FDCPA, however, including the right to dispute the debt and request debt validation. The debt buyer must provide verification of the debt within 30 days if you request it in writing.

What are the best ways to tackle delinquent credit card debt?

If you're facing an issue with delinquent credit card debt — whether it's been sold to a third-party debt collector or otherwise — there are several debt relief strategies that you can use to help address the issue:

• Payment plans: You may be able to work out an installment arrangement with the debt buyer that fits your budget. If you take this route, though, be sure to get any agreement in writing and ensure it specifies the total amount to be paid and when the debt will be considered satisfied.
• Debt settlement: With debt settlement (or debt forgiveness), the goal is to negotiate with the debt buyer to pay a lump sum that's less than the full amount owed. Many debt buyers are willing to accept 30% to 50% of the original balance since they purchased the debt at a significant discount.
• Debt management: You can also consider enrolling in a debt management program through a credit counseling agency. These programs can help you develop a structured repayment plan and potentially negotiate better terms with creditors.
• Bankruptcy: While generally best as a last resort, filing for bankruptcy may be appropriate for those facing insurmountable debt. Before you take this route, though, consider consulting a bankruptcy attorney or a debt relief specialist to understand if this option makes sense for your situation.

The bottom line

The sale of delinquent credit card debt is a legal and common practice in the financial industry. While it can complicate the debt collection process for cardholders, understanding your rights and options can help you better manage the situation. Whether dealing with the original creditor or a debt buyer, be sure to maintain detailed records of all communications, know your rights under the FDCPA and consider seeking professional financial or legal advice when needed. With careful planning and the right strategy, it may be possible to resolve even significant amounts of credit card debt and begin rebuilding your financial health.