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The People's Bailout

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Re: The People's Bailout

#51

Post by citricsquid »

patio11 wrote: post #25

For the benefit of folks who might not understand how debt collection works, which may include OWS: if you buy $10,000 of an individual's debt for $500 and then forgive the debt, they have just incurred income of $10,000 and are obligated to pay taxes on it exactly as if you had handed them $10,000 in cash for services rendered. If you don't inform the IRS that you forgave the debt, via a 1099-C, you're going to get…

From what I can find:

A bank will make a loan, after 120 (or 180) days of no payment the loan becomes "charged off", this means it's now tax-exempt

    The purpose of making such a declaration is to give the 
    bank a tax exemption on the debt
Then a debt buyer will purchase the value of the debt for a percentage

    A debt buyer is a company [..] that purchases delinquent 
    or charged-off debts from a creditor for a fraction of 
    the face value of the debt.
with the pricing generally being

    Depending on the age and history of the debt, a buyer 
    typically pays between 3 and 16 percent of the face 
    value of the debt.
Does this mean that the debt buyer than becomes in possession of the value of the debt for tax purposes, even after it has been charged-off by the company that initially granted the debt? or do they become in possessions of the amount paid (eg: buying $1,000 debt for $100, do they now own $1,000 for tax or $100?). Wikipedia isn't clear.

quotes taken from:

http://en.wikipedia.org/wiki/Debt_buyer http://en.wikipedia.org/wiki/Charge-off

Re: The People's Bailout

#52

Post by malandrew »

downandout wrote: post #38
heyrhett wrote: post #10

The problem that I see with this is that once your debt is sent to collections, that mark is already on your credit report for 7 years, even if you pay off the debt. So, "forgiving" the debt is pretty meaningless. People still have their credit report tarnished, which leads to higher interest rates, higher car insurance, and is basically another way to oppress people who are already poor. The only advantage to the de…

That isn't entirely true...if the owner of the debt (whether or not it is the original owner) decides to delete it from the credit record, then they can. In fact, many debt buyers act this way - they buy the debt for pennies on the dollar, and then offer to delete it if the person pays, for example, 25% of the amount owed. As mentioned elsewhere, this is know as PFD or "Pay for Delete". Most of the major credit burea…

Will that delete the history of that debt from the original creditor or only the creditor currently holding that debt?

Re: The People's Bailout

#53

Post by tsotha »

malandrew wrote: post #35
patio11 wrote: post #25

For the benefit of folks who might not understand how debt collection works, which may include OWS: if you buy $10,000 of an individual's debt for $500 and then forgive the debt, they have just incurred income of $10,000 and are obligated to pay taxes on it exactly as if you had handed them $10,000 in cash for services rendered. If you don't inform the IRS that you forgave the debt, via a 1099-C, you're going to get…

Couldn't OWS just hold it forever and not do anything with it? i.e. "Look I bought your debt, you don't have to pay me a penny for it ever, but I can't officially forgive you since to do so would subject you an income tax obligation. Just don't worry about it ever again and get on with your life."

I'm not sure of the exact mechanism, but... no. This was a common money laundering tactic in the '80s and '90s. At some point the IRS can declare the debt forgiven regardless of whatever the debt holder says, in the same way they can declare your money-losing business a "hobby" if they think you're not actually trying to make money.

The IRS has pretty wide latitude in these kinds of cases - I think the tax code is the only area of law where the government pretty much wins unless you prove your innocence.

Re: The People's Bailout

#54

Post by namank »

patio11 wrote: post #47
namank wrote: post #41

Earlier quoted context omitted.

If person A is in debt from Agency X, am I right in thinking that OWS would have to buy the debt from Agency X? They can't really buy debt from person A since A is in the hole... Or OWS would buy from person A and, by some weird tax provision, doesn't have to pay agency A the entire amount? Or...how does this actually work? Yeah, I know nothing about money.

Person A bounces a credit card payment to MegaBank, MegaBank asserts their credit card is in default and demands full payment immediately, A does nothing, MegaBank attempts to collect fruitlessly for ~4 months, A does nothing, MegaBank sells debt (principal + interest) to Agency X, Agency X attempts to collect fruitlessly for 18 months, A does nothing, Agency X sells it to Agency Y, A does nothing, Agency Y attempts…

Much appreciated!

Now I'm wondering what kind of business model Agency Y and Z operate on

Re: The People's Bailout

#55

Post by [deleted] »

patio11 wrote: post #49
malandrew wrote: post #35

Earlier quoted context omitted.

Couldn't OWS just hold it forever and not do anything with it? i.e. "Look I bought your debt, you don't have to pay me a penny for it ever, but I can't officially forgive you since to do so would subject you an income tax obligation. Just don't worry about it ever again and get on with your life."

Conspiracy to commit tax fraud.

[deleted]

Re: The People's Bailout

#56

Post by tsotha »

narcissus wrote: post #28
marknutter wrote: post #19

How does OWS think this debt accumulated? Debt isn't some random accident like getting hit by a car while crossing the street. You have to get yourself into debt. It used to be taboo, but it's acceptable to get into debt these days and worse yet, walk away from it. OWS, to me, represents an entitled generation.

"Debt isn't some random accident like getting hit by a car while crossing the street." Except debt can be exactly due to some random accident like getting hit by a car while crossing the street and you don't have the insurance to pay for the medical bills. I'm not saying that this is true for all of the OWS debts: probably not even the majority. I'm just saying that it's not as easy as "it's your fault you're in debt…

>Except debt can be exactly due to some random accident like getting hit by a car while crossing the street and you don't have the insurance to pay for the medical bills.

That's why we have bankruptcy laws.

From what I heard at the time, the big hobby horse for the OWS people was student debt, which can't be forgiven in bankruptcy. And that kind of debt is entirely optional.

Re: The People's Bailout

#58

Post by patio11 »

namank wrote: post #54
patio11 wrote: post #47

Earlier quoted context omitted.

Person A bounces a credit card payment to MegaBank, MegaBank asserts their credit card is in default and demands full payment immediately, A does nothing, MegaBank attempts to collect fruitlessly for ~4 months, A does nothing, MegaBank sells debt (principal + interest) to Agency X, Agency X attempts to collect fruitlessly for 18 months, A does nothing, Agency X sells it to Agency Y, A does nothing, Agency Y attempts…

Much appreciated! Now I'm wondering what kind of business model Agency Y and Z operate on

A variation of "Buy debt at 25 cents on the dollar, collect 40 cents on the dollar in interest and fees, spend 8 cents on the dollar for high school graduates to man the phones and 5 cents on the dollar for overhead.", with numbers adjusted depending on how toxic their average pool of receivables is.

Re: The People's Bailout

#59

Post by RyJones »

rosser wrote: post #16
perfectm wrote: post #9

Earlier quoted context omitted.

It's called bankruptcy. 7 years of never being able to have credit.

Are you kidding? They hand out credit cards like candy to the recently bankrupt.

This was my experience (by proxy, my aunt went bankrupt and the day it was final, bought a new car and had tons of credit card offers). They do this because they know you can't go bankrupt again for quite a while, so you're on the hook the second time.

Re: The People's Bailout

#60

Post by njharman »

HeyLaughingBoy wrote: post #12
heyrhett wrote: post #10

The problem that I see with this is that once your debt is sent to collections, that mark is already on your credit report for 7 years, even if you pay off the debt. So, "forgiving" the debt is pretty meaningless. People still have their credit report tarnished, which leads to higher interest rates, higher car insurance, and is basically another way to oppress people who are already poor. The only advantage to the de…

Seven years goes by in the blink of an eye once you're old enough ;-) Forgiving the debt is not meaningless: it's a big chunk of money you don't have to pay off. Granted, it's better to work with the creditor and get them to settle for a smaller amount, but a $15k debt removed from your record is not likely to cause you $15k of increased expenses over 7 years.

In US, most debt, you never have to pay off regardless of whether its forgiven or not. It's not a crime, and its not hard to avoid collectors.
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