Buying your own debt ?

stephan200210

Let me just make a few further points in all this. I think Antrobus' points are all well made (notwithstanding that I disagree with many of them) As a Newbie I do not want to be out of line, but I do find the debate very helpful.


I agree, for example, Tesco has no OBLIGATION to tell you their prices, but that is (would be?) useful information for consumers to know so they could make more informed buying decisions. The view seems to be that it is OK for consumers (in a variety of sectors) to operate with less than full information. My argument is they need (and deserve) to have full information.


Having worked in financial services, I know firms (hedge funds and others) who bought corporate debt at a big discount to the face value of the debt. This was either in the public or private markets. And often the company who bought that debt back was the very company that had issued it in the first place. And often publicly traded debt trades at a huge discount to its face value - and that very issuer buys the debt (often with borrowed money) and then cancels it.


What I cannot understand is why, if that works in the corporate world, it should not work for private persons as well. Once a debt has been sold the value of that debt is the "sale price" and NOT the original face value. No one who ever buys a debt expects to get face value for it - only to make a profit on what they paid. And if they do not disclose how much they paid, then people just have to make assumptions.


It seems one way to deal with the debt mountain is to facilitate people settling debts at a level ABOVE what debt buyers paid and BELOW the face value of the debt. The issue is only what should that level be.

Thrugelmir

stephan200210 wrote: »

But I draw a real distinction (moral and legal) between paying back someone who actually lent me the money and some 3rd party with whom I have no relationship at all and who paid pennies in the pound to acquire the debt.

Then you have no understanding as to how business works. Debt collection is an enormously expensive operation. With considerable overheads. For some organisations it's cheaper to cut the losses. Simply adding the debtor to the do not ever trade with again list.

stephan200210

With all due respect to Thrugelmir, I do have a deep understanding of how the debt business works. And I realise it is expensive and difficult to collect debts. That is why I am mystified when creditors do not settle. Especially when they are "in profit". If they pay, say, £10 for my debt, and I offer them £20, then they are in profit, generate cash, do not have to invest any more time (which equals money) into collection efforts and they can focus on other debtors. Why would they not do that? Clearly, if they are the ORIGINAL LENDER they may take a different view, but if I am a debt collection firm who only bought the debt at a discount.......??

antrobus

stephan200210 wrote: »

Let me just make a few further points in all this. I think Antrobus' points are all well made (notwithstanding that I disagree with many of them) As a Newbie I do not want to be out of line, but I do find the debate very helpful. ...

You are perfectly entitled to disagree with me. That's what a 'debate' is all about.

stephan200210 wrote: »

.... If they pay, say, £10 for my debt, and I offer them £20, then they are in profit,..

But they haven't paid £10 for your debt. They've paid (say) £1 million for a book of debts with a face value of £20 million. The price they paid will be a business judgement based on what cash they think they can squeeze out of that book. They know that it is very likely they will get nothing at all from some or even most of those debtors; they are relying on the belief that they can get a good chunk of cash from some of them.

Or to put it another way, in order to make a profit from that book, the purchaser will have to get some creditors to pay a lot more than the average price paid for their specific debt.

Generali

stephan200210 wrote: »

Let me just make a few further points in all this. I think Antrobus' points are all well made (notwithstanding that I disagree with many of them) As a Newbie I do not want to be out of line, but I do find the debate very helpful.


I agree, for example, Tesco has no OBLIGATION to tell you their prices, but that is (would be?) useful information for consumers to know so they could make more informed buying decisions. The view seems to be that it is OK for consumers (in a variety of sectors) to operate with less than full information. My argument is they need (and deserve) to have full information.


Having worked in financial services, I know firms (hedge funds and others) who bought corporate debt at a big discount to the face value of the debt. This was either in the public or private markets. And often the company who bought that debt back was the very company that had issued it in the first place. And often publicly traded debt trades at a huge discount to its face value - and that very issuer buys the debt (often with borrowed money) and then cancels it.


What I cannot understand is why, if that works in the corporate world, it should not work for private persons as well. Once a debt has been sold the value of that debt is the "sale price" and NOT the original face value. No one who ever buys a debt expects to get face value for it - only to make a profit on what they paid. And if they do not disclose how much they paid, then people just have to make assumptions.


It seems one way to deal with the debt mountain is to facilitate people settling debts at a level ABOVE what debt buyers paid and BELOW the face value of the debt. The issue is only what should that level be.

Welcome stephan200210.

The difference in corporate debt and personal debt when it's traded is that corporate debt is traded as individual names. If I want to buy bonds issued by BP, Rolls Royce or HSBC then I can do so quite simply in the secondary market. The reason? There is plenty of debt to buy and sell so the market is fairly liquid and you can do research on the company issuing the debt.

The company has a fiduciary duty to owners of the debt to say how sales are going, whether they are going to be able to meet their obligations and so on.

As for you? Are you going to put all the financial information about your life out there for the market to be able to price your debt? If you get a warning from your boss at work about being late too often that's material to the price of your debt. Are you a drunk or a smoker or enjoy a line or two on the weekend (and the odd Thursday night but not often) or been diagnosed with an illness that will impact on your ability to service your debt? That's material. How will you fulfill your fiduciary duty to owners of your debt?

Maybe it's simpler the way it is where bundles of debt are traded anonymously.

wotsthat

stephan200210 wrote: »

If they pay, say, £10 for my debt, and I offer them £20, then they are in profit, generate cash, do not have to invest any more time (which equals money) into collection efforts and they can focus on other debtors. Why would they not do that?

Experience probably tells them that people who renege on their debts probably lie about how much they can afford to repay.

stephan200210

Thanks to Generali for his comments re the difference between corporate debt markets and the market for personal debt. And also the greater information available in the corporate and public debt markets. But what I am having trouble getting my head around is the issue of what is the price/value of personal debt. Surely that price has been SET and it is the price that the secondary purchaser paid for that debt - albeit as part of a bundle. Maybe it is the average price paid over the portfolio. But it is clear the PRICE/VALUE is LESS THAN the face value of the debt. There is a MARKET PRICE for the debt and that is the price at which it most recently traded. So, if I am being asked to settle a debt there surely that market price (either disclosed or assumed) provides at least a benchmark for settlement.

stephan200210

In response to Antrobus post of 0921, which I had somehow missed, I think he has hit the nail on the head with his comment about debt purchasers buying a portfolio of debt of, say, £1M, with a face value of £20M. And I agree, many/most will be uncollectable and they need to try to squeeze every last penny out of those that they can.


That said, assume I am a debtor (whose debt is over 6 years old) and whose debt has been sold on. And I am willing to try to "settle" to get it sorted. So I offer them a figure. They paid 5% for the portfolio so I offer to settle for, say, 20%. That is three times their money on MY debt.


I guess my basic query is what is the "tipping point" on this. If I just walk away it is highly unlikely they will ever collect anything. My credit rating already trashed (but the 6 years have expired) and no real benefit to me is settling. But I am willing to anyway. Does the debt company just push me for a much higher percentage settlement (and I just walk away for any discussions) or do they accept a reasonable figure?


It seems they have "no cards to play" as whatever could be done to me in terms of my default has already been done. At the bottom line, if anything gets paid it is down to me to pay it - but whenever one expresses some willingness to pay something (and I could only do so by borrowing money from family etc) then the debt companies "smell money" and harden their stance.


Any thoughts/advice appreciated.


And I still think if the bank could have found a way to offer ME the debt at a reduced price (but higher than they sold it on for) I could have found a way to borrow money to pay it.

Babbawah

The only money that really exists in the current banking system . . . is the money that is paid in interest on a debt.

This is basically what's wrong with our current financial system.

antrobus

stephan200210 wrote: »

.... My credit rating already trashed (but the 6 years have expired) and no real benefit to me is settling. .....

If the "6 years have expired" and the debt is 'statute barred' then forget about it. Your credit rating will be untrashed as that statute barred debt falls off your credit record and you can start again.

This sort of thing happens. People borrow money, some sh*t happens and they can't pay it back. It might be their fault in some way, or not, as the case may be. Who cares?

Move on. Don't worry about the past.