Will Your Debt Disappear If The Lender Goes Bankrupt?
I’ve lost count of how many times I’ve been asked this question over the last couple of months:
If the credit card company (or any other lender) goes bankrupt, does that mean my debt will get erased?
The short answer to that question is … No.
If a lender goes bankrupt and isn’t able to restructure or come up with some way of getting through the bankruptcy - in other words, they go out of business completely - their assets will be bought by another company, who will then take over your debt.
So you might owe the debt to someone else, but you still owe the debt.
There could be a silver lining however.
If a company goes out of business and another one buys their assets (ie. your debt) they will almost always buy it at a discount. That means they pay less than face value of the asset.
For example, they might pay 50 cents on the dollar for it. So if the company had $50 million in outstanding debt, the second company would pay $25 million to take it over.
Where this could potentially help you is if you are in a position to negotiate a lower payoff for your debt. If you are able to come up with a lump sum to pay it off, you could potentially negotiate a discount of your own.
If the new “owner” of your debt bought it for a discount, they will still make money even if they lower the payoff amount for you.
Using the example again, if you owe $5000 they would have only paid $2500 to take over that debt. So if they lowered your payoff balance to $4000 (a 20% savings for you) they would still make good money on their investment. Unlike the original lender who actually lent you the full $5000, which makes them a lot less likely to discount it for you.
Now these numbers are all hypothetical of course - the percentages could be higher or lower, depending on the situation.
But even though your debt is highly unlikely to just disappear, you still might be able to take advantage of the situation if this happens to you.
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