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Comment by RollingJubilee | Hacker News Reader

Hi everyone. I want to assure you all that we are aware of the tax implications. We are working with a pro-bono tax lawyer and have called the IRS several times. The IRS informed us that we do not meet the requirements to file a 1099-c (we are not a bank, credit union, etc.)

Our tax lawyer has written some technical langue for our website. The bottom line is that we will be purchasing debt of people who are most likely insolvent and if you are insolvent there is no tax implications. Period. Even if they are not insolvent the chain of events that would have to take place to result in this counting as taxable income is highly unlikely. It's not impossible, but it's very very very (lots more verys) unlikely.

The long answer is much longer and more technical but rest assured, we are aware of the tax implications and it's not a problem.

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This sounds outrageously risky. Unless you have written, signed approval from the IRS for your plan I wouldn't dare make a move. Once you're in their sights it's damn near impossible to get away. In the current economic climate it doesn't take much to convince a jury you deserve to go to prison for tax evasion and/or fraud. A pro-bono lawyer can not stand against the legions of the IRS.

Did you know the IRS has their own court and judges?

The requirements of the 1099-c, Forgiveness of Debt is for any amount forgiven over $600. The argument for not filing a 1099-c for amounts over 600.00 is that one is not likely to know how much principle was forgiven. This is an important part of the code for the 1099-c. Believe it or not. Most Credit Issuers do not know the answer to that question. Lastly, how would the IRS know that a debt was forgiven? These transactions of buying debt are not reported to the IRS. I have been buying debt for 11 years and wrote a book on the subject.

If these people are insolvent, why can't they just declare bankruptcy?

Bankruptcy ruins your credit. It disqualifies you from holding certain jobs (such as in a company requiring people handling cash to be bonded), not to mention that credit checks are part of background checks these days. Some debt is difficult to discharge in bankruptcy (student loans). It can hurt chances of getting security clearance.

What the OP is offering seems to be a nice alternative.

But if you're insolvent, doesn't that mean you are... well, insolvent, as in not able to return credits? That's what "credit" means, no? If some company for some reason (which evades me, but that's their choice) doesn't want to hire insolvent people, wouldn't presenting oneself as solvent be a deception?

Student loans is a good cause though, indeed it is very hard to get rid of. But since they carry government guarantees (unless it's a private ones) - why would one be willing to sell it for cents on a dollar instead of just getting the money back from the state?

Isn't this also bad for your credit? Well, I guess maybe it's just less bad than bankruptcy or not paying anything at all.

I'm no expert in credit scores, but... If the original creditor already filed with the credit bureaus, that's definitely a negative on your credit. But I think the OWS can report that you "repaid" the debt which would be good. They could also bargain with the creditor to remove the negative report. Also, just reducing your balance of debt is good for credit. Plus, I don't think there's anything worse you can do for your score or future hopes of loans than declaring bankruptcy.

IIRC, if your debt is being sold to a broker at pennies on the dollar -which is pretty much the only way OWS can get its hands on it- the bank has already long since given up on getting you to pay, and the credit bureaus have long since been informed. In other words, the damage to your credit is mostly already done; an actual bankruptcy would hurt worse, but you're still in for a world of pain.

Wrong!

A BK is a unique event from other delinquent accounts on one's credit report that carries extra weight. As do foreclosure and repo.

Not only is it bad, a BK on your file means you will have to use 'special' finance to get a car loan and it will be impossible to find a bank to underwrite a sub-prime loan for a house (for seven years). You would also have to pay a higher rent security deposit on an apartment.

If you lose badly enough at credit that you end up declaring bankruptcy, maybe homeownership or car loans aren't for you. Just a thought.

Perhaps not home ownership - but in many (most?) parts of this country a reliable vehicle is an absolute requirement for holding down a job. A bankrupt person, if anything, is in greatest need of a trustworthy car, and is also the most likely to require a loan to do so.

There's also the notion of rent - people who've always had good credit don't really know how different renting is like for people who have bad credit. I came to this country a few years ago with zero US credit rating, and even with a high salary, offer letters, etc, had one hell of a time finding a place to live. Many landlords simply will not consider you, while others charge exorbitant deposits to cover the risk.

The recently bankrupt are also the least able to afford a security deposit several times higher than what everyone else pays.

The reality of credit in the US is that your life gets exponentially harder as your credit worsens, and the difficulty in turning that ship around increases dramatically. People who've never had to suffer from bad/no credit really need to examine this before clucking judgmentally.

I came into US with no credit too, and had absolutely no problem to rent. Actually, I had much more problem finding lenders willing to accept my pets than my credit (for some reason, most of the local apartments hate pets, no matter how small and harmless). Yes, they asked for security deposits (not exorbitant - 1-2 months, and many require it even with good credit), and yes, car loan I got was outrageously expensive compared to what I could've gotten with good credit - but I still could buy anything I needed.

I guess maybe in the Silicon Valley everybody is used to immigrants so nobody is surprised when the person with no credit shows up, especially if they have the actual money. If you have no money that's different, but then the primary problem is not credit.

BK, foreclosure of a home loan, and repossession of a car from a loan leave flags on one's credit file that are very different from no credit or even bad credit.

If a person with no credit history in the USA (like a naturalized alien) is added as an authorized user to an existing credit account the credit history of this account is 'cloned' to the new addition.

Used cars are widely available for relatively low prices.

Low to a fiscally solvent person. Even a couple thousand dollars is loan-worthy amounts to someone fresh out of a bankruptcy. Pawn shops and payday loan shops, after all, are a testament to the poor's need for small loans.

Could be. But there are some unlucky people in there as well - single parents who bought a house at the peak of the housing bubble because they were afraid that home prices would keep rising and leave them without a place to live. And then promptly lost their job in the recession.

Real estate speculators who made highly leveraged bets that went bad are in fact the sort of people who should, perhaps, not get the opportunity to repeat their mistakes.

What about renting?

http://news.ycombinator.com/item?id=4763091

Thanks. I never lived in the US. I came to Britain (from Germany) with neither car nor credit history. They let me rent a place, and I never had to buy a car. (Oh, and didn't have to worry about health insurance, either. But that's a slightly different topic.)

I wonder how my move to Singapore will play out.

But should I ever come to the US, I'll make sure I have plenty of money.

Or have some good friends here in advance to help you :-)

http://news.ycombinator.com/item?id=4764692

I've heard the US a great country to live in if you have plenty of money. It's so-so if you don't.

If you know how to hustle in the vernacular sense you can come to the USA penniless and retire wealthy.

The USA is a great place if you want/need the rule of law to protect property.

Overall, the US civil legal system is not corrupt. In many places in Asia and E. Europe corruption is systemic. It is much more difficult to keep a successful business in such an environment.

One example is real estate escrow services with title insurance.

Are you living in a different US? I'm not saying the path to wealth is beyond my horizon, but there's a lot in the way that only exists because previous generations managed things poorly. Someone starting a little further behind would have an exponentially harder time.

I am saying the USA is the easiest and safest place on planet earth to start your own business. If you know how to:

1. buy low & sell high 2. defer personal gratification 3. save a % of everything you earn

you can gradually grow wealthy.

The world is in recession, and the US might be starting to recover. It is a hard market right now. But it will recover and boom (and then crash) again.

I have traveled in Russia and Mexico and made friends with regular people who live there. I also studied economics at university. I am thinking about what I am writing here.

edit: I was born and raised in the USA

Two inspirational books to get started:

The Richest Man in Babylon

Andrew Carnegie and the Rise of Big Business

> edit: I was born and raised in the USA

And you have the means to travel to Russia and Mexico with enough depth to get to know people there, and went to a university.

Travel is beyond the means of most people in the US, both in time (can't get time off) and money (living paycheck to paycheck is common). That's if you're fortunate enough to be in the upper range of the middle class. Much lower and you're lucky to see a movie once a year, or participate in the broader culture at all.

What seems to matter most is an area's social and physical infrastructure. A person in the poorest part of NYC can scrape together enough for a subway ride to a better part of town to look for opportunity. They might even have access to a charity transportation service.

A person in the suburbs is doomed if their car breaks down, unless they can afford to fix it or know someone with the time to shuttle them around.

These are understandings derived from my experience and the experiences of people I know. I only took an introductory economics class at a community college, but I've also known plenty of well-educated, well-traveled people with no perspective. It seems like depth of education and experience matters more than breadth.

Consider the possibility that your studies and travels didn't open your eyes wide enough to the situation in your own country.

> I am very curious what your specific examples are.

The world is moving in the right direction--especially away from suburban nests of roads that require a car, which is highly relevant to my own obstacles--, so I don't see a point in elaborating.

> 1. buy low & sell high 2. defer personal gratification 3. save a % of everything you earn

What if you start with nothing, in a place with little or no physical mobility? If you're lucky, someone you have access to has connections and is willing to work with you.

> I have traveled in Russia and Mexico and made friends with regular people who live there. I also studied economics at university. I am thinking about what I am writing here.

How much time have you spent in the US? I'm assuming you don't live here from the way you write.

Cool. I was worried it was something more generalized.

I cited my travel as sources of my knowledge about corrupt systems.

As a male WASP child of educated, professional parents I have had almost every advantage possible. I know this.

Having watched many small businesses owned and operated by 'new' Americans has made me appreciate what is possible here, in a big city at least.

Where isn't that true?

This is the only place I have enough perspective on to say anything about.

Ironic you are saying this on an entrepreneurial forum Phil. As I mentioned elsewhere, Donald Trump has filed been through bankruptcy more than once.

Being and entrepeneur does not require you to approve the actions of other entrepenuers. Surely you can be an entrepeneur and have higher moral standards than Donald Trump.

I mean BK is often used as intended by entrepreneurs so they can move on to new projects.

I see your point that a useful thing can be abused.

Or perhaps if you get sick and have horrendously high medical bills that your insurance decides not to cover because you failed to report a hangnail on your application (or got fired from a job and then got screwed by a pre-existing condition). Just a thought.

Bankruptcy was 'reformed' while no one was paying attention and now some debt follows a person after a BK.

Some people still have land line phones and don't know how to fire bill collectors.

A BK also costs several hundreds of dollars now.

it's expensive and means-tested. You don't get to keep everything, even if everything doesn't amount to much.

Expensive in this case (for the US) meaning $700 to $2000. Which is rather a lot for the insolvent. Not to mention the paperwork sounds like an ordeal.

I think there is a psychological block for a lot of people too. It takes a certain point-of-view and education to be able to enter into lending arrangements with creditors with the perspective: "I believe I am going to make a profit and we will both win. But there is a chance I will not be able to. The lender is self-consciously taking a risk, which they are being compensated for via interest (same basic principle with an investor). If things go badly and I need to declare bankruptcy, then well, yes, it sucks. But I have done nothing morally wrong."

Fun fact: Henry Ford, Abraham Lincoln, and Walt Disney declared bankruptcy.

Part of interest compensates the lender for risk, but the rest of it--most of it, in fact, if you have good credit--is just time value of money.

Interest compensation for risk is distributed, granted. X percent of creditors will default on their loans. You don't know ahead of time who will and who won't. So demand Y percent from everyone over and above what you would in a world where everyone paid.

If that's not what you are getting at, I don't get your comment? Unless we are talking of a foolish lender?

Edit: Durr. Just got it. You are talking about the return the lender receives, the reason he lends instead of consumes. Yes, part of interest is risk compensation.

Donald trump has -- TWICE!

hey, do you know if it is possible to buy up a specific person debt? or just general debt contracts?

Yes, it is possible. I have purchased my daughter's debt from a hospital stay. This was 20 years ago but I called the creditor and told them that she was an unemployed college student and they weren't likely to get anything from her, I on the other hand was willing to pay them .20 on the dollar for the debt. They accepted and I paid the debt. (this was not the original creditor but I believe the third, the debt having been sold twice, so they likely made a little money on it and took what I offered rather than take the chance of getting less through another sale or nothing)

You could buy a specific corporation's debt but I think consumer bad debt is sold in big blocks of anon accounts until you are the owner.

Otherwise it'd be pretty interesting if you could buy your own debt at a huge discount.

This is sort of how collection agencies work, although the discounts here seems to be even steeper.

Most companies that own debt and those who collect for them will take a deep discount on a lot of the debt they purchase/collect. Individuals should be able to routinely settle debt for as low as 20 cents for every dollar they owe. This would be too expensive for Strike Debt to fund.

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