Legal Question in Credit and Debt Law in California

There is no official legal definition of a junk debt buyer, but you are in the ballpark. Unless they are criminals, junk debt buyers do not buy nor try to collect debts that are legally barred from being collected. Junk debt buyers who are working within the law buy debts that have been deemed too hard to collect by the original creditor. The original creditor sells the right to collect the debt for pennies on the dollar, and the junk debt buyer then collects if they can. Since they pay so little for the debt, if they collect anything they usually make money, and one debt that turns out to be fully collectible pays for a lot that are throw-aways. You should bear in mind that debts paid off by insurance or tax write-off are still legally collectible. Insurance companies have entire departments dedicated to accepting the creditor's rights from the people they have to pay off, and then pursuing those debts for reimbursement. It's called subrogation. And debts that have been written off are still valid debts too. The original creditor takes a tax deduction for the debt, less what they get from the junk debt buyer. Because it was written off, the junk debt buyer then has to recognize the money as income, rather than a non-taxable debt repayment, if they collect. That's all perfectly legal tax allocation between the original creditor, the junk debt buyer and the IRS. It has nothing to do with discharging the underlying debt. The only debts that are illegal to try to collect are those discharged in bankruptcy, or that are beyond the statute of limitations for suing on the debt.

The junk debt collector is simply someone who has purchased a debt that the bank has written off (called a charge off) because the bank believes the chances of collecting are not good and the bank does not want a bad debt in its portfolio of loans. The money is still owed and can be collected and sued upon in court to obtain a judgment. If the debt was discharged in bankruptcy then it is no longer a debt.. Debts on a written contract where the default was over 4 years before can be collected but if the debtor is sued he or she can claim the affirmative defense of the statute of limitations and win the lawsuit. Many debtors ignore the court summons and lose the lawsuit by default although they could win by answering the lawsuit on time and claiming that the debt is too old to be sued upon in a court of law.