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Junk debt buyers are companies that purchase delinquent or "charged-off" debts at a steep discount - often for $0.01 to $0.14 per dollar of face value. These firms then attempt to collect as much as possible, either directly or by outsourcing to third-party agencies. The debt they buy typically includes credit card balances, medical bills, and auto loans, often bundled into large portfolios.
Here's why this market exists and how it works:
The debt-buying industry, valued at $12 billion and employing over 130,000 people, plays a major role in managing distressed assets. However, it also raises concerns about aggressive collection practices and consumer impact.
Junk Debt Buying Industry: Key Statistics and Market Overview
Junk debt buyers don’t cherry-pick individual accounts. Instead, they buy massive bundles, often called "strips," which can include thousands of delinquent accounts. These portfolios typically combine various types of debt, such as credit card balances, medical bills, and auto loans. Lenders sell these bundles either through direct negotiations or competitive auctions. Once a sale is finalized, the buyer gets a data file containing essential details like borrower names, account numbers, balances, and charge-off dates. However, access to original contracts is often limited or entirely absent.
The industry generally splits into two groups: "active" buyers, who manage collections themselves, and "passive" buyers, who treat these portfolios as investments and outsource collections to third-party agencies or law firms. Larger buyers sometimes break down these bulk portfolios and resell smaller portions to firms with less capital. Before bidding, buyers carefully assess the quality of the debt portfolios.
Before placing bids, buyers dig into "tape data" - files containing details about the accounts, debtor locations, and how long the debts have been delinquent (known as "seasoning"). The quality of documentation plays a huge role in determining a portfolio’s value. For instance, portfolios with original contracts and complete payment histories are more expensive because they’re easier to validate and defend in court. Without proper documentation, buyers risk acquiring accounts they might not be able to collect on. This step is critical for identifying risks and estimating potential returns.
"A debt sale allows a creditor to pass all of the risk that it (or its collection agencies) have over to the debt buyer to meet their net collection goals."
- Penny Campbell, Chief Commercial Officer, Jefferson Capital
After reviewing documentation, buyers sort accounts based on their recovery potential. For example, "judgment debt" - where a court has already ruled in favor of the creditor - is considered highly collectible. On the other hand, "skip accounts," where the debtor’s location is unknown, pose a much higher risk. Many buyers now use AI-powered tools to organize and analyze data, validate accounts, and prioritize them based on their likelihood of recovery.
Once buyers evaluate the portfolio details, they focus on factors that influence pricing. One major factor is the age of the debt. Newer, freshly charged-off debt (delinquent for 120 to 180 days) tends to sell for $0.10 to $0.14 per dollar of face value. In contrast, older debt, often referred to as "zombie debt", may sell for just fractions of a penny because it has likely been sold and resold multiple times.
The statute of limitations - which varies by state but typically lasts three to six years - also plays a big role. Once a debt becomes "time-barred", buyers lose the legal ability to sue the debtor, drastically lowering its value.
| Factor | Impact on Price |
|---|---|
| Within Statute of Limitations | Higher - legal action can still be pursued |
| Existing Court Judgments | Higher - liability is already established, making wage garnishments easier |
| Missing Documentation | Lower - accounts are harder to validate and may be uncollectible |
| High Seasoning (Age) | Lower - older debts are harder to collect due to reduced debtor traceability |
Credit card debt dominates the market, making up about 70% of all purchases. However, the value of other types of debt, such as medical bills or Merchant Cash Advances, depends on historical recovery rates. When multiple buyers compete for limited inventory, prices can rise. Many digital marketplaces now hold one-hour competitive auctions to determine real-time pricing.
Once debt buyers acquire portfolios, they often aim to minimize costs by employing in-house collection teams or outsourcing the work to third-party agencies and law firms. To boost recovery rates, they frequently rely on litigation and credit reporting. Litigation is particularly effective - debt buyers or their attorneys file lawsuits to secure court judgments, which can lead to wage garnishments or property liens. Another approach involves reselling parts of their portfolios to smaller firms with limited resources, creating a secondary market for the debt. Credit reporting also plays a key role, as collection accounts stay on credit reports for seven years. This negative mark can pressure debtors into settling .
Because debt buyers purchase accounts at steep discounts, they can offer settlements at just 20–30% of the original balance and still turn a profit.
"A debt buyer can settle for 20 or 30 percent of what you owe and still make a profit."
These strategies directly impact the bottom line, as highlighted in the profit calculation process below.
Debt buyers calculate profits by subtracting the costs of purchasing and collecting the debt from the total amount recovered. Typically, buyers pay between $0.04 and $0.14 per dollar of the debt's face value. Even recovering a small portion of the debt can lead to a strong return. For instance, if a buyer acquires $100,000 in credit card debt for $10,000 (10 cents on the dollar) and recovers $30,000 through settlements or payments, they net $20,000 in profit - a 200% return.
The recovery rate largely depends on the type and age of the debt. Newer charge-offs (less than a year old) are more collectible and sell for 10 to 20 cents on the dollar. By contrast, older debts that have been resold multiple times - known as tertiary or quaternary debts - might sell for as little as 2 to 5 cents per dollar. Here's a breakdown of common debt categories and their typical purchase prices:
| Debt Category | Purchase Price (per $1.00) | Recovery Potential |
|---|---|---|
| Fresh Charge-Offs (<1 year) | $0.10–$0.20 | High |
| Credit Card Debt | $0.10–$0.15 | High |
| Medical Debt | $0.05–$0.07 | Moderate/Low |
| Secondary Charge-Offs | $0.05–$0.10 | Moderate |
| Payday Loans | $0.02–$0.06 | Low |
| Tertiary/Quaternary Debt | $0.02–$0.05 | Low |
Every collection tactic plays a role in determining profit margins, showing how closely tied recovery strategies are to financial outcomes.
While many collection methods are standard, some practices push legal and ethical boundaries. For example, "zombie debt" collection involves pursuing accounts that are already settled, discharged, or past the statute of limitations . Although collectors cannot legally sue for time-barred debts, some use misleading tactics to encourage small payments, which could restart the statute of limitations clock .
Another concerning practice is debt scavenging, where firms buy extremely old or dubious debts - sometimes for less than a penny per dollar - and aggressively attempt to collect. Many of these accounts may be legally uncollectible, but firms pursue them anyway. These tactics have drawn attention from regulators and led to lawsuits under the Fair Debt Collection Practices Act (FDCPA). The FDCPA explicitly bans harassment, threats of lawsuits on time-barred debt, and deceptive communication . It also prohibits practices like publishing debtor lists or using obscene language during calls.
The debt-buying industry, valued at around $12 billion, spans both standard recovery operations and aggressive, legally questionable methods. These approaches highlight ongoing regulatory challenges that will be explored further in later sections.
The FDCPA (15 U.S.C. § 1692) applies to junk debt buyers when their primary focus is collecting debts they own. This law prohibits certain harmful practices, emphasizing the negative effects of abusive debt collection:
"Abusive debt collection practices contribute to the number of personal bankruptcies, to marital instability, to the loss of jobs, and to invasions of individual privacy." - 15 U.S.C. § 1692
Regulation F (12 CFR Part 1006), issued by the Consumer Financial Protection Bureau (CFPB), builds on the FDCPA by addressing modern communication methods like email, text, and social media. For instance, debt buyers must send a validation notice within five days of first contact, detailing the debt and informing consumers of their 30-day right to dispute it. The regulation also restricts calls to specific hours - no earlier than 8:00 a.m. or later than 9:00 p.m.
The FDCPA operates under strict liability, meaning consumers can claim statutory damages - up to $1,000 per violation - without proving actual harm. Attorney's fees and court costs can also be recovered. For example, in March 2021, the CFPB reported over $15 million in consumer redress from cases against debt collectors, and in 2012, the FTC received 125,136 complaints about third-party collectors.
The law further restricts workplace calls if the employer prohibits them and allows consumers to send cease-and-desist letters to stop all communication. Debt buyers sometimes attempt to use the "bona fide error" defense, arguing that violations were unintentional and occurred despite preventive measures. However, this defense is limited and does not cover systemic issues or deliberate misconduct. While federal regulations set the groundwork, state laws often impose additional requirements, such as stricter time limits or disclosure rules.
State laws add another layer of regulation, defining the time frame for pursuing legal action on debts. These statutes of limitations vary widely, impacting how debt buyers approach collections. For example, Texas limits most consumer debt lawsuits to four years, while the National Consumer Law Center suggests a uniform three-year limit.
Once the statute of limitations expires, the debt becomes "time-barred", meaning lawsuits or arbitration cannot be initiated. Regulation F requires debt buyers to disclose when a debt is time-barred. In Texas, these disclosures must be at least 12-point font and formatted boldly, capitalized, or underlined. The required notice reads:
"THE LAW LIMITS HOW LONG YOU CAN BE SUED ON A DEBT. BECAUSE OF THE AGE OF YOUR DEBT, WE WILL NOT SUE YOU FOR IT."
Some states also enforce a non-revival rule, ensuring that even partial payments or verbal acknowledgments of a time-barred debt do not restart the statute of limitations. Additionally, borrowing statutes in many states require courts to apply the shorter statute of limitations from the state where the debt originated, adding another layer of complexity.
Debt buyers face significant challenges due to these regulatory frameworks, especially when it comes to documentation. They must provide precise records of the debt amount and its transfer history. Many lawsuits fail because buyers cannot produce key documents like the original contract, itemized statements, or proof of proper debt assignment - a problem often referred to as a "broken chain of title." These documentation issues not only increase legal risks but also reduce recovery rates, highlighting the intricate and challenging environment debt buyers must navigate to stay compliant and maintain profitability.
The junk debt buying industry has seen a massive transformation, evolving into a $4.88 billion market as of 2024, with expectations to hit $7.96 billion by 2029. This growth is fueled by rising consumer debt levels. In the first quarter of 2024 alone, U.S. household debt increased by $184 billion. Today, over 25% of consumers have at least one debt in collections, and 41% of working Americans are dealing with medical debt. The expiration of pandemic relief measures has left many without financial safeguards, increasing their susceptibility to debt.
Technology is reshaping the industry in real-time. Between 2023 and 2024, the number of debt collectors using AI and machine learning jumped from 11% to 18%. This shift has brought tangible results. For example, LVNV Funding, part of Sherman Financial LLC, saw its case filings skyrocket by 350% in 2024 compared to 2019. By 2024, LVNV was responsible for almost 18% of all consumer debt cases in the jurisdictions analyzed. As Manny Plasencia, Senior Director of Third-Party Collections at TransUnion, explained:
"Utilizing data to drive the right approach in a rapidly changing environment is becoming more impactful to recovery and collections performance than ever".
The industry's ability to thrive during economic downturns is another key factor. Many companies now use integrated business models, handling both credit origination and debt collection within the same corporate structure. This approach allows them to maximize the economic benefits of the entire debt cycle. Meanwhile, the secondary market for debt portfolios continues to evolve, reshaping portfolio values with each transaction.
Debt portfolios rarely stay with their original buyers. Instead, they are often repackaged and resold in the secondary market, with prices dropping at each stage. Fresh charge-offs may sell for 3% to 20% of their face value, while older, heavily aged debt can trade for as little as 2.4 cents on the dollar.
In an effort to improve accountability, the industry has leaned toward self-regulation. Since 2016, the International Receivables Management Certification Program has been mandatory for RMA members. Meanwhile, digital transformation has further revolutionized how these transactions occur, as discussed in the next section.
Digital platforms have completely overhauled the debt trading process. What used to take months of manual negotiation can now be completed in just one-hour auctions, offering real-time pricing and greater market transparency. For instance, Debexpert, a leading platform, boasts over 500 active buyers, including hedge funds, private equity firms, and collection agencies.
The impact of these platforms is visible in recent deals. In February 2026, a $1.5 million portfolio of auto deficiency loans in Florida was auctioned on Debexpert. A month later, a $121 million portfolio of equipment finance deficiencies was listed on the same platform.
Modern platforms come packed with advanced features. Buyers can use tools like stratification reports and data tape analysis to filter portfolios by geography, seasoning, or balance range before bidding. Security is also a priority, with features like SOC2 Type II data security and end-to-end encryption protecting transactions. Compliance tools ensure adherence to regulations such as the OCC's "Supervisory Reset" (OCC Bulletin 2025-4) by verifying buyer profiles and documenting all transactions.
AI-driven valuation engines are another game-changer, helping creditors recover 15–20% more in asset value compared to older methods. Some platforms even incorporate telephony protocols to identify buyers with "Level A Attestation" for call deliverability. As John Sanders, CEO of Bridgeforce, aptly put it:
"If you're looking at your calendar to modernize, the competition is looking at their watch".
The range of asset classes traded on these platforms highlights the market's evolution. While credit card debt remains a staple, platforms now also handle merchant cash advances (MCA), medical debt, equipment finance deficiencies, student loans, and judgment debt. For example, in early 2026, portfolios like $1.8 million in non-performing MCA loans were actively trading on digital platforms.
Junk debt buyers play a major role in the U.S. financial system, operating within a debt collection industry valued at $12 billion and impacting around 77 million Americans. By purchasing charged-off accounts for just $0.04 to $0.14 per dollar, these buyers inject liquidity into creditors like banks, credit card companies, and auto lenders. This process helps lenders clean up their balance sheets and recover some of their losses.
The business model is high-risk but potentially lucrative. Debt buyers purchase portfolios at deep discounts without guarantees about the accuracy of the data. As Debt.com describes:
"Debt buyers are taking a big risk when they purchase these portfolios... It's a bit like buying a storage unit at an auction... You may end up with one or two cards really worth something, but the rest are largely just junk".
Despite the risks, the returns can be substantial. Buyers often settle debts for 20–30% of the original balance, turning a profit even after acquiring the debt for pennies on the dollar. However, this comes with significant consequences for consumers.
For individuals, collection accounts can devastate credit scores, staying on credit reports for seven years from the original delinquency date. The reselling of debt can also lead to "zombie debt", where old obligations resurface repeatedly. On the other hand, debt buyers are often more willing to negotiate settlements than original creditors, given their lower initial investment.
Over the years, the industry has shifted from small private firms to include publicly traded companies on Wall Street. Credit card debt makes up the majority of the market, accounting for nearly 70% of accounts sold. In fact, five of the six largest U.S. credit card issuers rely on debt buyers to recover losses on unpaid accounts. This evolution highlights how the industry has become a specialized mechanism for managing distressed assets, creating a secondary market where debt is treated as a commodity.
To confirm that a debt is actually yours, you can request debt validation from the buyer. By law, they must provide this validation within five days of their initial contact with you. If they can't validate the debt, they lose the legal right to collect it. Carefully check the validation details to make sure everything is accurate and legitimate.
If a debt collector reaches out about a time-barred debt, it's important to know they can't legally sue you or threaten to do so once the statute of limitations has passed. Be cautious about making payments or even acknowledging the debt, as this could restart the statute of limitations. You have the right to inform the collector that the debt is time-barred, request that they stop contacting you, and, if necessary, dispute any legal action by asserting that the debt is no longer enforceable.
Debt buyers are required to present enough documentation to confirm the debt is valid and that they have the legal right to pursue a lawsuit. This often involves providing a chain of assignment or purchase agreement, original account statements, and proof of the debt’s exact amount and ownership. That said, debts are frequently sold with disclaimers and minimal documentation, which can weaken their ability to enforce the claim.
More than a decade of Ivan's career has been dedicated to Finance, Banking and Digital Solutions. From these three areas, the idea of a fintech solution called Debepxert was born. He started his career in Big Four consulting and continued in the industry, working as a CFO for publicly traded and digital companies. Ivan came into the debt industry in 2019, when company Debexpert started its first operations. Over the past few years the company, following his lead, has become a technological leader in the US, opened its offices in 10 countries and achieved a record level of sales - 700 debt portfolios per year.
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