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If it makes you feel better you can think of it like company C being hired by the original lender to collect on the debt, in return for a cut of the proceeds.

If it makes you feel better you can think of it like company C being hired by the original lender to collect on the debt, in return for a cut of the proceeds. The main difference is they are paying the original lender for the privilege of doing. This is a good thing, for everyone involved since it gives lenders an additional avenue to recover at least some of the cash owed, hence making lending less risky and subsequently cheaper for borrowers.

svnt 3y ago
This is an assumption which at point in history is primarily just a narrative the credit companies like to propagate to further support of their profits. Why do they need to charge higher rates for unsecured debt if it can trivially be escalated to better than secured due to what is effectively a historical legal loophole?
- johngladtj 3y ago
  I'm not sure what you mean? None of this changes where the debt is located on the capital stack, and it certainly doesn't turn an unsecured debt into secured debt. It feels like you're just using terms you don't understand to justify your preconceptions, even when it doesn't make any sense. Interest rates are higher to to reduced offers to provide the debt as a result of the higher default risk those debtors have. The risk adjusted return on all this tends towards the risk free rate regardless.
  - svnt 3y ago
    If in personal debt proceedings unsecured debt is changed based on the inaction of the debtor (who very possibly cannot afford to take the required action) into a lien that can be used to garnish wages, how in your worldview has that not climbed the “capital stack”? Would a wage garnishment that is legally enforceable not be valued more highly than an equivalent amount of unsecured debt? We shouldn’t care about the internal conventions of a bank more than the end result: a person who has lost everything and is unable to defend themselves suddenly forcibly having as much as 25% of whatever limited income they have removed from their paycheck to the profit of an attorney.
    - johngladtj 3y ago
      Creditors are (almost) always ahead of equity in the capital stack, and putting a lien on property or garnishing wages is in no way a change in position in that stack. Ultimately all the assets of the debtor are suitable for recovering any debts, whether they are secured or otherwise. A secured debt just means that that particular creditor has priority over other creditors when it comes to using the securing asset to recover debts, and imposes restrictions on what the debtor can do with that asset. An unsecured debt doesn't mean that the debtor can just not pay his debts without any consequences, it just means that when those consequences do come the secured creditors get their "pound of flesh" first. This is perfectly normal, and it's exactly what you sign up for when you take on a debt. Don't like it? Don't borrow money.

svnt 3y ago

This is an assumption which at point in history is primarily just a narrative the credit companies like to propagate to further support of their profits. Why do they need to charge higher rates for unsecured debt if it can trivially be escalated to better than secured due to what is effectively a historical legal loophole?

johngladtj 3y ago
I'm not sure what you mean? None of this changes where the debt is located on the capital stack, and it certainly doesn't turn an unsecured debt into secured debt. It feels like you're just using terms you don't understand to justify your preconceptions, even when it doesn't make any sense. Interest rates are higher to to reduced offers to provide the debt as a result of the higher default risk those debtors have. The risk adjusted return on all this tends towards the risk free rate regardless.
- svnt 3y ago
  If in personal debt proceedings unsecured debt is changed based on the inaction of the debtor (who very possibly cannot afford to take the required action) into a lien that can be used to garnish wages, how in your worldview has that not climbed the “capital stack”? Would a wage garnishment that is legally enforceable not be valued more highly than an equivalent amount of unsecured debt? We shouldn’t care about the internal conventions of a bank more than the end result: a person who has lost everything and is unable to defend themselves suddenly forcibly having as much as 25% of whatever limited income they have removed from their paycheck to the profit of an attorney.
  - johngladtj 3y ago
    Creditors are (almost) always ahead of equity in the capital stack, and putting a lien on property or garnishing wages is in no way a change in position in that stack. Ultimately all the assets of the debtor are suitable for recovering any debts, whether they are secured or otherwise. A secured debt just means that that particular creditor has priority over other creditors when it comes to using the securing asset to recover debts, and imposes restrictions on what the debtor can do with that asset. An unsecured debt doesn't mean that the debtor can just not pay his debts without any consequences, it just means that when those consequences do come the secured creditors get their "pound of flesh" first. This is perfectly normal, and it's exactly what you sign up for when you take on a debt. Don't like it? Don't borrow money.