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Can a charged-off account purchased by junk debt buyer be sold back to initial creditor to file lawsuit & collect?

Stanford, CA |

If a junk debt buyer is unable to collect on a charged-off account they purchased from a creditor, can that account then be sold or transferred back to the initial creditor they bought it from, and have the initial creditor sue and collect the money? Can a collection agency that was assigned by the initial creditor to collect, do this? Or is it not legal in the case of a charge off. Trying to get a better understanding of the process. Thanks in advance for any help

Attorney Answers 4


  1. You wrote, "Can a charged-off account purchased by junk debt buyer be sold back to initial creditor to file lawsuit & collect?

    A: Yes.


  2. Conceivably, yes, that could happen, but practically it never happens, except if the debt buyer believes that the account was not properly classified when sold by the creditor.

    Debt buyers normally sue in their own name, though sometimes if the named plaintiff is the original creditor, it can be a challenge to know if the debt had been purchased by a debt buyer or not. The process is explained in the articles on my website, which is linked below.

    Robert Stempler (please see DISCLAIMER below)
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  3. "Charge off" is an accounting term used by creditors for their own tax reporting purposes. It has nothing to do with your obligation to pay the debt. The account can be transferred back and forth, and other debt collectors without affecting the validity of the debt. The only issue that would arise in a lawsuit is proof that the plaintiff in the lawsuit actually owns the debt.


  4. A "charge off" is an accounting and tax principle, which allows a creditor to "ride off" or take a tax "break" on debt they consider to be irrecoverable. It doesn't mean you still owe the money. And it doesn't mean they can't still try to collect if they think, down the road, and before the statute of limitations expires, that its worthwhile pursuing.

    As far as the sale from the original creditor to a junk debt buyer: if there is an adequate chain of title, i.e., legal proof that the debt was bought and sold by the various entities, then the original creditor can still sue you. Make them prove in court that A sold to B, and then B sold back to A. If they can't prove that, they will lose.