Odds of credit card debt issuer failing
<p>Let's say I owe debt to capital one. They fail as a business and the debt passes to another bank. There is a massive banking catastrophe and most banks fail.</p>
<p>Now, what are the odds that the debt would still exist after all this? The average bankruptcy time is about 18 months and is longer for larger companies. The statute of limiations is around six years. Would the debt expire or get lost after 2-3 major bank failures?</p>
<p>Also, the debt holder would have no incentive to collect if it was in bankruptcy proceedings and didnt own anything.</p>

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<p>They fail as a business and the debt passes to another bank. There is a massive banking catastrophe and most banks fail.</p>
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<p>Companies do not cease to exist because they are in bankruptcy. Typically a caretaker management is set in place (elected either by the borrowers or the judge overseeing the bankruptcy) to avoid the loss of value during those proceedings.</p>
<p>Usually a company in bankruptcy has to reduce its operations because it will find it difficult to get resources to continue its usual operations. But it could continue those operations that are still expected to provide a profit. It would not be unusual for the caretaker manager to ask more funds from the borrowers in order to ensure that they do not lose even more of the value of the company.</p>
<p>I would say that debt collection is profitable enough to keep it running, at very least to cover the minimal legal requirements so that the debt does not expire.</p>
<p>And at the very least, <strong>the debt can be sold</strong> to a debt collection agency or another bank, outside of the bankruptcy proceedings (then the net value of this sell is what will be passed on to the borrowers). It will give a small profit for the original company, but at almost no cost or risk for them.</p>
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<p>Also, the debt holder would have no incentive to collect if it was in bankruptcy proceedings and didnt own anything.</p>
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<p>You are confusing managers with owners. The people deciding what to do are the managers, and even in bankruptcy managers still owe fiduciary duty to their business. In fact, in general there is no need for the manager of the company to &quot;own anything&quot; of the company they manage, yet they have to work to improve its situation.</p>
<p>If a manager negligently caused the company to cause value, he could be sued for it. Even if he is not sued, it would look very bad for him when looking for a new job.</p>
<p>In any case, this is not different than the shop across the street going out of business. Have you seen any of them putting a sign telling &quot;We no longer own anything, so come here and help yourself whatever you want for free&quot;? No? A credit card company would not do that, either.</p>

debt