Buying your own debt ?

stephan200210

In response to the last post by Antrobus, out of my circa 12 credit card debts (I know too many but taken out when I was doing well) I paid off 3 IN FULL (as they were with the original lenders), one I have not heard anything from in over 6 years, so Statute barred. That leaves EIGHT. which are NOT statute barred. And I have been making payments, on a monthly basis, on each of those for over 7 years. I have only been paying £2 to £5 per month on each, so have not really reduced the balances owing by much. I owe maybe £3,000 on average on each, so still a total of circa £24,000. But all these remaining eight have been sold on (often multiple times) and are now owned by debt buyers. Hence my interest in buying own debt. Given the age and multiple sales, for the sake of argument, the debt has a "value" of say 10% of the amount owing, or £2,400. I can borrow money to settle these - say, £5,000 from my brother. Given the small amounts I am paying per month, and taking a debt of £3,000 for example, if I pay £60 per year (£5 per month) it would take 50 years to pay this off! So if I offer them, say, £500 NOW on that debt, what on earth stops them just accepting it. On a simple Present Value calculation they are much better off. And no doubt they paid £300, or perhaps much less for the debt. Maybe they think they can get MORE out of me. But I have pretty much zero assets in the UK and am effectively judgement proof. It all comes back to my initial point about buying ones own debt (or settling) but that the VALUE of that debt is very low ONCE it has been sold on to a debt buyer - which sale price sets the market price. Anyway, thanks again to Antrobus especially for this thoughts and comments

Babbawah

stephan200210 wrote: »

In response to the last post by Antrobus, out of my circa 12 credit card debts (I know too many but taken out when I was doing well)

Oxymoron alert !

People doing well generally don't feel the need to maintain 12x credit cards.

stephan200210

To Babbawah's point, that is right of course, but the cards accrued at a time when, if you were doing well, you received unsolicited cards in the post. Literally. I remember being send cards, being told I was pre-approved and then getting cards sent to me etc. It was a different era

MobileSaver

stephan200210 wrote: »

Given the small amounts I am paying per month, ... Maybe they think they can get MORE out of me.

Exactly this. The assumption will be that at some point you will be able to afford to pay more and even if you don't your debt still has a value which can be sold on again - they don't care if it takes 50 years as you're still an asset on the company's balance sheet.

stephan200210 wrote: »

It all comes back to my initial point about buying ones own debt (or settling) but that the VALUE of that debt is very low ONCE it has been sold on to a debt buyer - which sale price sets the market price.

Princeofpounds highlighted the flaw in this right at the beginning of the thread. It won't happen because debtors would simply stop paying off their debts on the basis they can pay less once the debt becomes distressed and sold on to another lender.

antrobus

stephan200210 wrote: »

.... But I have pretty much zero assets in the UK and am effectively judgement proof. ...

That depends on where you are exactly.

As a general rule, UK civil judgements can be enforced in both Commonwealth countries and fellow EU members.

chewmylegoff

michaels wrote: »

It obviously changes the market but it wouldn't kill it. Aplying it retrospectively to those who had already bought debt bundels would obviously be unfair.

Imagine you are the original lender and want to sell 10 loans, the price you would get offered for the debt would be on the basis that the individuals borrowers have the right to immediately pay off their own debt at the transaction price when the transaction takes place. There would still be a market clearing price for this bundle.

No there wouldn't be because whatever price you agreed you would, as the buyer, suffer an instant loss as all of the 'performing' loans would instantly be paid back at whatever price you had agreed but all the ones which were going to default still wouldn't be paid back.

Such a system basically removes all of the upside potential for the buyer but leaves them with all of the downside risk. The price for downside risk with no upside potential is usually zero or less than zero.

stephan200210

MobileSaver wrote: »

Exactly this. The assumption will be that at some point you will be able to afford to pay more and even if you don't your debt still has a value which can be sold on again - they don't care if it takes 50 years as you're still an asset on the company's balance sheet.


This is a good point. And no doubt valid, but I find it hard to understand. The "asset" is really not an asset at all if properly valued - even on a discounted cash flow basis. It is like a landlord keeping a couple of apartments in a building vacant as he can only rent them at a lower price than the currently rented flats. And he is worried that, under accounting rules, his asset will be valued at a lower amount due to the most recent rental deal. But he is foregoing CASH, which is critical. Bank and others are reluctant to part with assets at "realistic values" which is why many have inflated balance sheets.






Princeofpounds highlighted the flaw in this right at the beginning of the thread. It won't happen because debtors would simply stop paying off their debts on the basis they can pay less once the debt becomes distressed and sold on to another lender.

Maybe a few would, but I think most people genuinely want to pay off their debts and only fail to do so when they get into financial difficulty. I really do not think there is a risk of "moral hazard" here.

stephan200210

chewmylegoff wrote: »

No there wouldn't be because whatever price you agreed you would, as the buyer, suffer an instant loss as all of the 'performing' loans would instantly be paid back at whatever price you had agreed but all the ones which were going to default still wouldn't be paid back.

Such a system basically removes all of the upside potential for the buyer but leaves them with all of the downside risk. The price for downside risk with no upside potential is usually zero or less than zero.

Is the real issue here one of the "packaging" of the good with the bad? Those that cannot be ever collected, should just be written off and those where someone who has defaulted makes an offer, that offer (assuming reasonable) gets accepted and the bank/credit card company just "moves on". A huge part of this issue (along with sub-prime etc) is the original issuer/holder of the debt selling it on. This creates a secondary market - but one that is closed to the original debtor. Which brings me back to the my original point (and indeed the start of the whole thread). There is some kind of market price for a piece of debt in the secondary market. And that price is a significant discount to the face value. And someone (either the original debtor or some kind philanthropist) wants to settle for a figure around that amount. But few if any transactions happen. Usually, when there is a "clearing price" transactions flourish. Why not in these circumstances? Lots of reasons have been put forward, but surely it is better for all if transactions DO happen.

chewmylegoff

stephan200210 wrote: »

Is the real issue here one of the "packaging" of the good with the bad? Those that cannot be ever collected, should just be written off and those where someone who has defaulted makes an offer, that offer (assuming reasonable) gets accepted and the bank/credit card company just "moves on". A huge part of this issue (along with sub-prime etc) is the original issuer/holder of the debt selling it on. This creates a secondary market - but one that is closed to the original debtor. Which brings me back to the my original point (and indeed the start of the whole thread). There is some kind of market price for a piece of debt in the secondary market. And that price is a significant discount to the face value. And someone (either the original debtor or some kind philanthropist) wants to settle for a figure around that amount. But few if any transactions happen. Usually, when there is a "clearing price" transactions flourish. Why not in these circumstances? Lots of reasons have been put forward, but surely it is better for all if transactions DO happen.

I don't think the packaging up is a problem - although it is obviously creating a problem of perception.

If your debt is sold as part of a job lot, and the price for the whole lot is 50% of the total face value of all of the debts, that does not mean your particular debt is only worth 50% of its face value. It means that is the average value of all of the debts put together. Some of those debts are worth more to the purchaser than the others.

In principle it is no different to saying that a bag of 10 items costs £100. The individual value of the products is 9 items worth £1 each and 1 item worth £91. The total value is £100, the average value is £10. Your logic is that you should be able to go to the shop and buy the £91 item on its own for £10 because that is the average value per item if it was purchased with 9 other things costing £1 each.

stephan200210

chewmylegoff wrote: »

I don't think the packaging up is a problem - although it is obviously creating a problem of perception.

If your debt is sold as part of a job lot, and the price for the whole lot is 50% of the total face value of all of the debts, that does not mean your particular debt is only worth 50% of its face value. It means that is the average value of all of the debts put together. Some of those debts are worth more to the purchaser than the others.

In principle it is no different to saying that a bag of 10 items costs £100. The individual value of the products is 9 items worth £1 each and 1 item worth £91. The total value is £100, the average value is £10. Your logic is that you should be able to go to the shop and buy the £91 item on its own for £10 because that is the average value per item if it was purchased with 9 other things costing £1 each.

This is a very valid point. But then what is the basis for coming up with some kind of valuation for each individual item? Surely that is the starting point in terms of negotiating a settlement. The debt buyer/owner says I want 100% of the face value, the debtor says I cannot pay anything. How does anything get resolved? And surely there is a RANGE of valuations of the "bag of debt" and that range is narrow(ish). While the £91 and £1 valuations are good for making the point, it seems unlikely the range would be that great. Surely if the bag of debts was, say, 5 years old, few it any payments had been made etc there is a small value range around the amount paid. And do not forget often the value for the package is 5p in the £1 - or even less. Essentially, most are uncollectible and the buyer is taking a "punt" (no doubt based on experience and some statistical evidence) that he can get enough to pay to make a profit. Not dissimilar to those people who bid on storage lockers! Again, the issue HOW does one derive a proper value to agree a settlement figure?