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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)
    Twitter: @RStempler

    NOTICE: The above statements are provided for general information purposes only and are not intended as legal advice or advice of any sort for a specific case or legal matter. If you do not have a signed attorney-client fee agreement with the Consumer Law Office of Robert Stempler, APC ("the Firm"), then until such written fee agreement is provided and signed by both a prospective client and attorney for a particular case, neither Mr. Stempler nor the Firm will represent you nor will they be your attorney in any matter and you remain responsible for retaining your own attorney and for compliance with any and all deadlines and for any statutes of limitations that may pertain to potential claims. Comments made on a public forum, such as, to not have any confidentiality because others may read them. If you desire a private consultation with Mr. Stempler that is confidential, please go to and submit a free eCase Review. The result portrayed for a client was dependent on the facts of that case. Results will differ if based on different facts. The Firm and Mr. Stempler are a debt relief agency. The Firm and Mr. Stempler help people file for bankruptcy relief under the Bankruptcy Code.

  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.

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