November 13, 2013

"A group of Occupy Wall Street activists has bought almost $15m of Americans' personal debt over the last year as part of the Rolling Jubilee project..."

The debt was purchased for $400,000.
Andrew Ross, a member of Strike Debt and professor of social and cultural analysis at New York University... said the group had received letters from people whose debt they had lifted thanking them for the service. But the real victory was in spreading knowledge of the nature of the debt industry, he said.

"Very few people know how cheaply their debts have been bought by collectors. It changes the psychology of the debtor, knowing this. So when you get called up by the debt collector, and you're being asked to pay the full amount of your debt, you now know that the debt collector has bought your debt very, very cheaply. As cheaply as we bought it. And that gives you moral ammunition to have a different conversation with the debt collector."

31 comments:

Brando said...

I can't really find fault with this--if it increases transparency and competition in purchasing and forgiving debt. You can do what you want with your own money after all. Though if they did this on a more widespread scale, wouldn't it drive up the demand for debt, making it pricier to buy up and thus more valuable for debtholders?

Marcus Carman said...

It ain't $15 million dollars worth of debt if it goes for $400 G's!

Marcus Carman said...

If one was able to check one of these persons' credit reports, one would see that the only debt forgiven is their percentage of the $400,000. The remaining amount shows as a loss to the original creditor and remains on the person's credit report for many years, making it difficult if not impossible for them to borrow money. They can thank OWS for nothing.

RecChief said...

a debt is a debt. who cares how cheaply they purchased it? if you buy a car for 30,000 do you think the dealer added it to his inventory by paying the manufacturer 30,000 or something less than that?

Alexander said...

I do not see how it gives one a 'moral' position to do anything of the sort. The fact that someone has bought the right to collect your debt *at a price cheaper than the debt to be collected* is obvious if you're going to accept the idea that debt is transferable.

I think there's a stronger moral case to be made that you owe person X, $Y and some third party can't basically buy out your financial obligations without your consent. Which, I believe was in part the argument made back in 08-09, when people were being foreclosed on by banks and lenders they had never dealt with.

rehajm said...

Let's list off the negative externalities- Reduced value of delinquent debt for debt holders, Higher borrowing costs for everyone...

Peter said...

I don't quite get what OWS wants to accomplish. Is it there intent that debt- practically all debt- should be forgiven?

If so, have they considered what this will do to the price and availability of credit in the future? If they think all lending with interest is immoral, would they make it unlawful?

If not, then what is their point? OK, so the debt of some debtors is practically worthless. Now what?

tim maguire said...

I have some debt I'd like to sell them. How do I get in touch?

Michael said...

So the left discovers what a first year finance student knows. Nice. A breakthrough.

Pettifogger said...

Are they giving 1099s for cancellation of debt income? They better be.

stutefish said...

Not 'moral' position, 'business' position. If you know they bought your debt at pennies on the dollar, you can look for a strong negotiating position in the nickels-to-dimes on the dollar range, instead of being browbeaten into agreeing to pay some large fraction of the full amount.

Michael said...

Alexander. It is perfectly normal and legal and ethical for a lender to sell your mortgage. Maybe at a profit and maybe at a loss. Your obligation as a borrower is to pay as agreed. If you fail to live up to your end of the bargain the holder of the debt can seek any remedies in the written contract between you, borrower, and the holder of the note, lender. Including foreclosure in the case of real estate.

jr565 said...

Peter wrote:
"I don't quite get what OWS wants to accomplish. Is it there intent that debt- practically all debt- should be forgiven?"

Wasn't that part of their charter?

Michael said...

Pettifogger. There you go spoiling the fun. Of course they dont give 1099s as required by law because....because...republicans? Racism?

Julie C said...

Anyone who listens to Dave Ramsey knows that debt collectors purchase the debt for pennies on the dollar. He advises negotiating from that position from the get-go. I have no problem with what OWS did. They bought the debt and are free to do what they want with it, including writing it off completely.

Of course the real bad debt, student loan debt, will be an albatross hanging around the neck of this generation for years, and not much is going to change that.

Terry said...

The debt forgiven should be 1099'd, shouldn't it? You can think up some pretty perverse incentives if it is not. You don't pay taxes on consumer debt, i.e. if I take a $5k advance on a credit card and spend it on a trip, then pay off the debt with $500, I've just spent $4500 of income tax free money.

Joe said...

If I recall, if your debt is "forgiven" for less than you owe, you may own income tax on the difference.

Rocketeer said...

The debt forgiven should be 1099'd, shouldn't it?

Bingo. It is. Congratulations, Occupy! You've delivered these poor debtors from the hands of rapacious capitalist debt-holders, into the hands of an even-more-rapacious IRS.

One thing I've noticed is that as bad as they are, Bank of America has never sent armed agents into debtors' homes, weapons drawn, to be arrested and sent to jail. Debotors prisons are alive and well, but only if your debt is owed to Big Government.

Robert Cook said...

"Is it (OWS's) intent that debt- practically all debt- should be forgiven?"

Probably, yes.

Moose said...

So it's nice they did this, but it didn't address how they got into debt nor did it teach them how to get out of it.
Just another feel good gesture to make them feel better about their utter lack to mount a coherent political movement.

The Godfather said...

So this is great! OWS pays $400k to a bunch of loan sharks and credit card companies and proudly cancels the debts owed by poor schlumps who were never going to pay it anyway. The winners? The loan sharks and credit card companies!

David said...

Presto. A way to solve the high cost of college education.

FullMoon said...

Meanwhile, in the real world, anybody who has actually been unfortunate enough to deal with collection agencies is eventually offered a discount on what is owed.

1099 is for earned income. I do not see how that applies unless there is a specific law regarding cancelled debt.

Donna B. said...

I lost a lot of respect for debt holders a couple of years ago. I was the executor of an estate which could pay the deceased's debts and the heirs expected it to.

There were 44 non-secured debtors owed a total of near $50,000. The highest owed to any single debtor was $6000, the lowest $38. Most were between $500-$1500.

A notice was published in the newspaper with instructions on how to contact the estate. Each debtor was sent a certified, return receipt requested, letter notifying them of the death and explaining what the court required them to do to be paid in full. The requirements are not onerous -- basically filling out a 1 page form with the amount of the debt and where to send it. Having the signature on that form notarized was the only thing that could possibly be called onerous.

Out of the 44, only 2 responded to the letter. Those were paid in full.

Now, the estate laws where the deceased lived actually prevent me paying those that didn't respond. I explained that and (again, how to respond) to all the debt collectors that called me and I called those who sent written notices to explain it to them.

It's also true that his heirs could have decided to pay his debts themselves from his inheritance. But they were astounded that almost none of them responded. Their lack of response legally negated the debts, so the heirs decided not to pursue paying the debts individually. I can't blame them.

Now, 2 years later, I'm getting calls/letters from people who purchased that debt for pennies on the dollar as described in this post. You'd be surprised (or maybe not) at the tactics they try to use to get me to "pay up".

The really sad part is that so many of these were hospital/doctor co-pays.

The lesson I learned from this is that there's a system in place for most holders of non-secured debt: in-house debt collectors, hired debt collectors, then sell the bad debt. Anything outside that is not considered.

I also learned that there are a few debt collectors who specialize in collecting debts from estates and heirs. Even these companies were not capable of getting that form filled out and returned.


cubanbob said...

"Is it (OWS's) intent that debt- practically all debt- should be forgiven?"

Probably, yes."

Your paycheck is a debt until it's cashed.

Full moon in the real world debt forgivness is considered as income by the IRS.

Edmund said...

According to their web site, a forgiven debt must be reported on a 1099-C, with some exceptions.

My father's estate had a run-in with a credit card company that sold off the debt to a really obnoxious collector without notice. The estate attorney asked them to jump though the required hoops and they didn't, so they got nothing. If they hadn't sold off the debt, they would have gotten paid each month. I decided then and there to cancel my card with them. Reading between the lines might lead you to discover which card company it might have been.

The first inkling that we had of the debt being sold was a collection call to my mom, which I answered. I was told that the call came from a law firm, and that they wanted payment in full. I told them that since I had never heard of them, nor gotten anything from the card company, I didn't believe them. The collector got indignant and said, "But we are a law firm." I replied that given my father's (a podiatrist) experiences with lawyers, it made me more inclined to think they were lying. And I told them that if they called again, I'd report them as being in violation of federal debt collection laws, since we didn't owe them anything. It took the card company 2 months to cough up a letter that they had sold the debt. Our attorney stalled them for months - he ahd fund doing it - and they gave up.

EDH said...

You Are Forgiven

J said...

Moral hazard

MadisonMan said...

donna b and Edmund -- thanks for your stories -- very interesting reading.

Edward Lunny said...

" 1099 is for earned income." As far as the IRS is concerned, any portion of a debt that isn't repaid and is taken as a loss by a creditor is considered to be income. You contracted the debt, made a credit card purchase or some similar, have taken possession of some product or made use of some service. The contract includes your promise to pay for said service/product and then default. Having acquired and/or used the product or service, any difference in the cost of that product and what you actually paid is income. Period. As such you are responsible to pay income taxes on that amount. Some folks I'm acquainted with who went through credit counseling that included the write off of such debt were shocked when they received 1099s and the requirement that those amounts be claimed as income on their returns for that year. It made a noticeable difference in their liabilities that year.

handworn said...

Tyler Cowen posted about this here:

http://marginalrevolution.com/marginalrevolution/2013/11/inefficient-forms-of-aid.html

and remarked, "One question is how many of these people will go into bankruptcy anyway. Another is why not just send the money to even poorer individuals? The low market value of the debt, of course, means these individuals (mostly) would not have paid anyway, so the leveraged return on this investment is not as high as is being claimed."