When you default on debt, first, the original lender makes collection efforts. Then, they often transfer your debt into an internal collection agency, so they act like a bill collector but the original creditor still holds the debt.
Every debt is somebody else's asset. Forever.
Debts can change hands. If the company goes bankrupt, they become property of the bankruptcy trustee, who will sell it. If the lender dies, the debt becomes property of the estate, who will sell it because the heirs want cash, not uncollectable notes.
More commonly, the primary creditor (the one who lent you the money) gives up on you, and takes your debt and a bunch of other uncollectible debts, and sells the bundle to collection agencies who specialize in buying bad debt. They pay a fraction of the original value for the debt. Now, the collector owns your debt, and you owe them the whole shebang, unless the Statute of Limitations runs out.
The value of a debt is the average amount they are statistically likely to collect from people in your demographic. Loosely, debt amount x probability of collecting.
The fact that they paid a fraction of the original value does not affect what you owe.
Debts can go to sleep for years
First and foremost, if you don't tell your creditors every time you move, then they may actually be sending you mail, and you are missing it. This will also happen if you select paperless billing and then change email addresses.
And in your case, it's hard to remember telling creditors you moved, when you do not realize they think they are creditors.
Billing mail is sent First Class, and it will "return to sender" if it is not deliverable. Companies keep track, and will flag your mailing address as no good anymore, so they stop wasting stamps. That has no effect on the debt.
Or, the creditor may decide that the probability of successfully collecting from you isn't worth the costs of trying to collect, at least for right now. So they will suspend collection efforts for a time, including possibly several years.
And then something changes.
- due to their soft queries on your credit report, they discover you now have a good job, or an heir died and perhaps left you money.
- the creditor hired someone who is trying to "work on collecting" some of their old debt.
- the creditor sold your debt to a totally new collections company.
Now, new effort is being deployed. They may be actively researching your new mailing address using public data or soft credit report queries. The result is that you are seeing new collection notices after a time of quiet.
No interest, though
In order to charge interest, the debt needs to be still active. They need to be sending you regular mail on it notifying you of every posting of interest and fees. Of course, if you didn't give them your postal address, that's your fault.
They can only do this for a few months before the debt reaches a "charged off" state. Then, the debt becomes frozen. If a collector is contriving new interest payments, that's fake... that won't hold up in a court of law.
The Statute of Limitations destroys collectibility.
The Statute of Limitations varies by state from 2-6 years. After the statute has run, you have an airtight defense if they try to sue you.
The clock on the Statute is reset to zero anytime you do an affirmative action to acknowledge the debt as legitimate, such as make a payment on it, or state in writing that the debt is valid. You should always be wary of collection agents on the phone trying to entrap you, but if they attempt to reset the clock on the Statute merely by twisting your words, you can tear that apart in court, and probably even get sanctions.
The debt, however, exists forever, though it is toothless once the statute expires. You may see sporadic collection efforts for as long as 20 years after. Debts older than the Statute can be collected on if the debtor does not know or care about the Statute. Some collectors are good at getting blood from that stone.
Haggle relentlessly.
Some of the things you can negotiate for is the notion that the debt was never a legitimate debt in the first place, and that neither party will make any adverse statments about the other, under penalty of $$$ liquidated damages. (So they agree there was never anything to report to a credit reporting agency).
They also agree the payment is a legal expediency "to make the matter go away", and does not acknowledge the existence of any debt, and is NOT forgiveness of a debt. That means they won't send a 1099 to the IRS for the forgiven amount. (Of course you'll be in trouble with the IRS if that isn't true).
Note that such an agreement with Collector Z does not have any effect on collectors X or Y who held the debt before, nor the original creditor. This is why it's best to negotiate with the original creditor.
