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Progressive fund retires consumer debt (now if only they were as concerned about our national debt)

Progressive fund retires consumer debt (now if only they were as concerned about our national debt)

I have been pretty harsh on liberal blogger Allison Kilkenny in the past for her playing the Nork Card on John Bolton and the “sexy” card on Sarah Palin, her hysteria over Catholic charities, and her misfire on Bill Sparkman.  She was a big cheerleader for the Occupy movement.

All her hard efforts have paid off because she’s now a columnist at The Nation.  She has a post which is of great interest involving a plan by progressive groups to buy up consumer debt on the cheap and then walk away from it.

I have no problem with the concept — in fact, I kind of like it if that’s how they want to spend their money, Occupy Wall Street Activists Buy Up Debt to Abolish It:

Strike Debt, a movement formed by a coalition of Occupy Wall Street groups looking to build a popular resistance to debt, plans to hold a telethon and variety show November 15 in support of the Rolling Jubilee, a system to buy debt for pennies on the dollar, and abolish it.

The telethon, which has already sold out, will feature artists including Jeff Mangum of Neutral Milk Hotel, Lee Renaldo of Sonic Youth, Guy Picciotto of Fugazi, Tunde Adebimpe of TV on the Radio, plus other surprise guests.

Strike Debt hopes to raise $50,000, which the group claims can then be used to purchase, and eliminate, around $1 million in debt….

Business Insider called the test run “impressive” and “noble,” although Alex Hern at the New Statesman points out that, while the law is on Occupy’s side, the banks may not be. Hern points to Felix Salmon’s discussion of the American Homeowner Preservation, which sought to buy up distressed mortgages and find ways for the homeowners to stay in their homes and pay off their debt.

Here’s the almost unbearable video for the program, called Rolling Jubilee:

The Rolling Jubilee website indicates they have raised, as of this writing, just over $456,000 to retire just over $9 million in consumer debt.  A related website is Strike Debt.

I’m not seeing any problem with this, assuming the logistics work that the debt for specified individuals is relieved.  There would seem to be a potential tax issue as forgiveness of debt generally is taxable to the debtor, but I’m sure (?) they have thought this through.

I’d much rather see progressive donate money to retire consumer debt than to candidates to run up our national debt.

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Comments

I think it’s cool, smooth and groovy…

so long as they don’t mau-mau the creditors into selling.

A strict market transaction with no coercive element is just swell.

This, btw, is called “private charity”.

I bet they haven’t thought of the tax issue.
which will put those people right back into debt.

    Tom Morrison in reply to dmacleo. | December 4, 2012 at 1:08 pm

    I second dmacleo – if their debt is retired then they have IRC Section 108 cancellation of debt income and instead of owing a provate consumer credit entity they will owe the IRS and state/local taxing jurisdictions – ouch! Bet these trendy lefties hadn’t thought through all of the implications of their schemes but have to like the verve of at least considering private market alternatives rather than asking for a public bailout or general debt amnesty.

      William A. Jacobson in reply to Tom Morrison. | December 4, 2012 at 1:13 pm

      Here is their explanation on the website: “Will the Rolling Jubilee have to file a 1099-C Cancellation of Debt form with the IRS?No. The Rolling Jubilee will earn no income from the lending of money and is therefore exempt from filing a Form 1099-C under the Internal Revenue Code Section 6050P.” http://rollingjubilee.org/#faq

      Is that a sufficient explanation?

        Not being a tax lawyer, I don’t know the law, but I’m pretty confident they’re safe from the IRS under this administration.

        I’m pretty sure the COD 1099 will be generated by those entities who sold them the debt for pennies on the dollar. This is just like paying $1,000 for a $4,000 debt – the $3,000 is COD income and will be issued by the credit card company, etc.

          Pettifogger in reply to cdtaxlady. | December 4, 2012 at 3:40 pm

          No, COD income arises when the debtor is no longer liable. I used to be in-house with a vulture fund dealing in distressed commercial real estate debt. We bought the debt at steep discounts and collected as much as we could. The whole idea was to collect more than you paid.

        ShakesheadOften in reply to William A. Jacobson. | December 4, 2012 at 2:09 pm

        I’m not certain about this, but I believe if the debtor is insolvent (they don’t need to be in bankruptcy), then cancellation of indebtedness does not lead to taxable income. I could be wrong, though.

        Right the 1099-C can only be generated by a financial institution. Regular schmoos like us can’t stick it to companies who stiff us on bills. That and honestly its up to the financial institution to do it, and they typically don’t because it means they can’t resell the debt, ever.

          William A. Jacobson in reply to imfine. | December 4, 2012 at 2:28 pm

          They may not have to generate a 1099-C, but does that mean it’s not a taxable event for the debtor? It’s an issue of reporting versus tax liability.

          imfine in reply to imfine. | December 4, 2012 at 2:54 pm

          Forgiving even is a weird thing. No money changes hands, people just stop trying to collect. when the government taxes forgiveness of debt, its more of a vindictive thing. Say I take out a loan to buy a car for my business, my business goes bust, and lets say there is $500 dollars that wasn’t covered on the load from its resale and the bank decides not to collect. That $500 represents a loss to me AND $500 to the bank. so there is no net income. However if I were to go bankrupt personally and there was $500 shortfall, I would then be taxed, because the $500 I lost in the value of the car isn’t income? Even if I drove it to work everyday to make money? It makes sense to hold al your assets as company assets, because the government treats you less viciously.

          The income tax unless your a real business makes no sense. they should simply tax property and consumption. The income tax is just too messed up.

        The beneficiaries are not necessarily liable for gift taxes which are often the responsibility of the donor.
        Their goals seem to include the solicitation of “mucho dineros”, has anyone checked with the filing of legal papers at the Attorney General’s office in Albany, NY?

I’ve got no problem with private charity, however ineffective.

The debt that sells for ‘pennies on the dollar’ is debt hat isn’t going to get collected; or is barred by the statute of limitations. No amount of pressure from the debt collectors is going to get any money from these borrowers – which is why it is virtually worthless on the market.

This isn’t charity to borrowers, it’s charity to debt-collection firms.

    Ragspierre in reply to egd. | December 4, 2012 at 12:20 pm

    Most debt is sold for “pennies on the dollar” by the primary creditor.

    There is no “statute of limitations” for a secured debt I’ve ever seen anyone run into, and none for one which has had any kind of litigation started within the statute. Old judgment debts are readily renovated in most jurisdictions of which I know.

    A market seller is not the beneficiary of a charity.

      You’re assuming that the debt is either secured or the product of litigation. There are plenty of consumer debts that fit neither definition. Credit cards, medical bills, utility bills, just to name a few.

      “A market seller is not the beneficiary of a charity.”

      Of course he is. The charity is taking money otherwise unavailable and introducing it into the market. If nothing else, this increases the demand (and price) for other buyers, improving the value of the product.

        Ragspierre in reply to egd. | December 4, 2012 at 3:40 pm

        Nope. I read what the Prof. wrote, and I have more than a little experience in the field.

        IF the debt is pure unsecured debt from a state that allows wage garnishment, it WOULD make sense to take a judgment if the amount is significant. Here in Texas, it would not, since wages are constitutionally exempt from garnishment (by pretty much any except government [See IRS]).

        We don’t know what these people are talking about, do we?

        EVEN here, provided the amounts are sufficient, taking a judgment and establishing a judgment lien STILL makes sense, because the lien-holder can take against the estate when the debtor passes. I sell such liens when I take them, at a discount (i.e., pennies on the dollar) so I don’t have to fiddle with them, and to realize the present value of the money.

        You confuse “charity” with “consumer”. A charity acting as a market participant is just another “consumer” in that role. Having another consumer in a market may be a benefit, but it damn sure isn’t charity.

    Same Same in reply to egd. | December 4, 2012 at 2:22 pm

    It would be pretty stupid to buy any debt for which the Statute of Limitations has tolled. It’s by definition not collectable.

    Anyway, the Left never does anything for free. There must be a something about the debt they want to retire which serves their purposes.

As this involves leftists, I can’t help but think it’s somehow “hare ” brained. I can’t help but think they made a wrong left turn at Albuquerque.

If the debt can be purchased for pennies on the dollar then it is already for the most part extinguished. The sellers are acknowledging that it is barely worth their time to pursue collection. It seems to me that a program to monetize that debt will actually increase the value of it to those sellers. In other words, debt they would not ordinarily continue to pursue will become a bit more valuable as an item of trade.

I suspect the effect of this lefty venture will not be as they desire.

    Ragspierre in reply to jeffrey. | December 4, 2012 at 12:34 pm

    Yep. It adds another bidder to the auction for the debt, with the potential the price will be bid up.

    Pettifogger in reply to jeffrey. | December 4, 2012 at 1:35 pm

    Collectibility is different from validity. I may owe a $1,000,000 on a perfectly valid obligation. But if I were you, in pricing the purchase of that debt, you best not count on collecting $1,000,000.

legalizehazing | December 4, 2012 at 1:18 pm

Somehow I’m not surprised their idea still requires other people’s money. It’s a decent idea. I love the no debt part of it. But they’re the trusting dolts that trusted the banks and credit card companies. Just like they trust those creditors they trust Democratic politicians like naive children.

That video is downright shameful though. Blaming your problems on anyone but yourself is shameful.

Midwest Rhino | December 4, 2012 at 1:38 pm

Wasn’t TARP originally sold as paying off those debts? Then Paulson came out and said they went with the bait and switch, “it’s all legal”, and they decided to fund (reliquify?) the big banks instead, even helping the bad player banks buy up smaller banks. So the banks are more liquid, still holding the debt over the home “owner” head, or just holding the house empty. (while Goldman Sachs got their 100 cents on their bad debt)

As bad as it was for government to bailout of homeowners that made terrible decisions, it was worse to bailout bankers that profited by leveraging against those bad loans (troubled assets) and sold them as AAA.

I’m not sure what bad loans these occupiers are targeting, but I think many banks have still not “marked to market” their debt, but have been quietly underwritten by taxpayers. The damage done (mostly) by Democrats using the housing industry to leverage financial games is deep and wide. The glut built on debt is still there.

http://realestate.aol.com/blog/2012/07/13/shadow-reo-as-much-as-90-percent-of-foreclosed-properties-are-h/ (held off market)

ShakesheadOften | December 4, 2012 at 2:06 pm

I don’t oppose this act of private charity on principle, but the more interesting question is how many of the people who are freed from debt by this method will once again be debt-laden and insolvent in 5 to 10 years? Anyone want to join me in betting on “a lot”?

Once again, the difference between giving a man a fish and teaching him to fish.

    Ragspierre in reply to ShakesheadOften. | December 4, 2012 at 2:34 pm

    To the extent these Occupy kiddies become landlords or lenders to these debtors, I expect quite a bit of hard, cold education will happen.

    No bad thing, really.

BannedbytheGuardian | December 4, 2012 at 2:53 pm

No one has asked who the recipients will be?

Their friends.

The primary concern with the “Jubilee” concept is that it is a dissociation of risk. The biblical Jubilee followed a period of indentured servitude (i.e. “slavery”), presumably to ensure that the producer does not become an involuntary servant of the consumer through fraud (i.e. misrepresentation); but also to control progressive corruption.

The secondary concern is that the distortion (e.g. inflation) of the market has already occurred and the consequences were and will be suffered by producers and other consumers. For example, the cost of medical care and pharmaceuticals have been inflated beyond reason in part due to a manufactured demand. The same thing happened with education, where the greatest burden falls on individuals who work to cover their obligations. The same thing happened with real estate, especially through efforts to integrate classes of people with disparate means.

Since there is no collateral behind services, the labor which provided it will remain uncompensated. However, tangible goods (e.g. houses, cars) should be confiscated and redistributed through the market.

It is dissociation of risk which causes corruption. It is dreams of instant gratification which motivates its progress. Individuals incapable or unwilling to self-moderate their behavior are ineligible to enjoy liberty.

I’ll give credit where credit is due (hehehe) and say that I applaud them trying to help people.
but I feel the “forgiven” people will just do it all over again as there were no repercussions for their foolishness.
a free ride is a free ride no matter when given.

http://www.irs.gov/publications/p4681/ch01.html#en_US_publink100080240

Gifts

Generally, you do not have income from canceled debt if the cancellation or forgiveness of the debt is a gift.

Strikedebt (at strikedebt.com) is the parent organization of the Rolling Jubilee people. They have a nifty, if strident, piece at http://strikedebt.org/The-Debt-Resistors-Operations-Manual.pdf .

The website there has a better explanation. Another point is that the Rolling Jubilee people are not buying individual debt so it is impossible for them to target friends and allies except that all layabouts and problem children are hopefully leftist allies.

The debt they are buying is ‘bundled’ debt. They pay X amount and get a bundled zipfile with the documents and names and addresses on say, a thousand debts and the supposed rights to collect.

Megan McArdle discussed the tax consequences of the debt forgiveness fairly recently. The people whom have had their debt forgiven will be hit with a tax bill.

The summary from her: …[O]therwise, we’d all get our paychecks as “loans” that would then be “forgiven” and the government would have to fund itself by looking under the Senate couches for spare change.

http://www.thedailybeast.com/articles/2012/11/14/debt-and-taxes.html

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