Why Collection Agencies Pay So Little to Purchase Judgments
One way for a creditor to quickly dispense with a judgment and move on with life is to sell it to a collection agency. But there is a downside: low ball offers. Collection agencies tend to offer pennies on the dollar. But why?
There are a number of different things that determine how much a collection agency is willing to pay for a judgment. Before getting to them, it is important to understand why and how selling a judgment is even possible. After all, judgments are court decisions.
When a court renders a decision involving a monetary award, the judgment rendered by the court establishes a legal debt. And in this country, legal debts are considered assets that can be bought and sold just like real estate. This allows collection agencies to purchase money judgments. When they do, they become the legal owners of the debts they have bought.
Why They Pay So Little
As for why collection agencies pay so little for judgments, it all starts with risk. A collection agency takes the risk that it will not be able to successfully collect on the next judgment it buys. Managing that risk means being circumspect about the amount to offer. As the risk increases, the amount of agency is willing to pay decreases.
Note that risk is only the starting point. There are other factors in play:
- Debt Age – Collection agencies look at how old a judgment is to help determine, impart, the likelihood of collection success. Older judgments are typically harder to collect. So the older a judgment is, the less it is worth to the agency.
- Dollar Amount – The actual value of a judgment, in dollars and cents, impacts a collection agency’s profit margin. Sometimes the only way to purchase a judgment and still make the margin acceptable is to offer pennies on the dollar.
- Time and Effort – Collection agencies need to estimate the amount of time and effort they will put into collecting. A judgment is worth less if the time commitment and effort are considerable.
- Volume Discounts – In exchange for purchasing large numbers of unpaid judgments, collection agencies expect to get discounted prices. It is a tradeoff. They pay less but take more judgments off a creditor’s hands.
Additional considerations include competition from other agencies, legal protection in favor of debtors, and even a creditor’s negotiating position at the time of the sale. Collection agencies will always try to pay as little as possible in hopes of maximizing profits. The question for creditors is whether the offered prices are too low.
There Is Another Option
Being offered pennies on the dollar for a judgment may seem less than palatable. But what is a creditor to do if he wants to unload judgments rather than dealing with them himself? There is another option in the consignment model. Simply put, some collection agencies do not purchase judgments. They work on consignment.
Salt Lake City’s Judgment Collectors is one such agency. They work on behalf of their clients to find debtors, track down assets, make contact, etc. They also cover all their own costs. As for how they get paid, they charge a fee equal to a certain percentage of whatever they collect. They do not get paid if they don’t collect, which gives them plenty of incentive to succeed.
When collection agencies purchase judgments, they do not tend to offer full price. They offer a lot less. They do so to mitigate risk and increase profits. For creditors not interested in selling for pennies on the dollar, the consignment model is always an option.
