The basic idea is that debt collectors can buy your debt for pennies on the dollar. For instance, $500 could buy $14,000 in distressed debt. Occupy is going to buy people’s debt at the super cheap rate, and instead of harassing anyone, will erase it. Poof, gone.
It will be run by donations, and hopefully people whose debt is erased will be grateful and pass it on by donating themselves.
Sound like a cool plan?
The justification is: we bailed out the banks. Why not the people?
How is this not a pyramid scheme?
How is it a pyramid scheme?
So they set up a fake debt collection agency? Cool.
Great idea except if it catches on, it’s just going to drive up the cost to purchase the bad debt.
Which will have the effect of putting predatory debt collection agencies out of business, since it’ll no longer be profitable for them to buy bad debt and try to intimidate people into paying up.
So it’s a win-win situation, really.
A little maybe, but the main reason debt is so cheap is that the underlying loans are bad and the securing assets have lost much of their value. Even if this scheme ends up buying a lot of the bad debt, its not really going to change that.
Its a charity, not a scheme to make money. People donating aren’t looking to get their money back out later.
Wouldn’t people with that much bad debt be better off declaring bankruptcy?
How do you figure? Having your debt erased seems pretty obviously better than declaring bankruptcy.
Bankruptcy gets all your debt erased at once, not just what this charity can afford to buy at one time. And if your debt is already that heavily discounted, it’s not like you’re going to have much of a credit rating to preserve.
(Student loan debt can’t be released in bankruptcy, of course, but it similarly isn’t likely to be available to be bought at distressed prices either).
It doesn’t seem bad from a moral standpoint but the random nature of it makes me feel as though the money could be better spent.
If they buy a random piece of debt from a doctor’s office, that might be someone’s sole piece of outstanding debt and they’re blessed to have it erased and spare them… or it might be one piece of fifteen outstanding debts and the debtor realistically just as screwed even without the one bill. So now the debtor wasn’t really helped and Occupy WS is out the money they spent to do the good deed. Without being able to target their debt purchases, it seems like a feel-good scattershot thing rather than something fruitful.
That appears to be the point. From their FAQ
There are probably a lot of people who can’t make payments on their debt, but would be able to make payments, or pay outright, the amount of money that their debt sells for on the secondary market. In a more rational world, the banks would just sell these people their own debt back to them, and they could just forgive themselves. The banks would get the debt off their books, manage to realize at least some money from their original loan and the debtor would get the issue resolved and could move on.
Realistically, the Occupy movement can barely afford to buy a bag of chips at the local 7-11, so the effect of this would be minimal.
It’s not a pyramid scam, but it’s also largely pointless. The kind of cheap debt they’re planning on buying is cheap because it’s been written off as worthless. If they think they’re going to buy, like, $100,000 of student loans for pennies on the dollar, they’re living in a fantasy world.
They have 200,000 dollars so far, which they calculate is enough to buy 4 million in debt.
Obviously they’re never going to raise enough to have a meaningful effect on the National level of indebtedness. But as I said above, that’s not really the point. The point is to draw attention to the weird and inefficient way debt-products are divorced from the loans that created them, to the detriment of both the debtors and the banks, while helping some debtors in the process.
And it will help some people. The money I donate to the soup-kitchens doesn’t eliminate world hunger, but I still think its worth doing. It helps some people.
Isn’t that essentially what happens when you settle a debt?
Not at the secondary market price.
Not if they ever want to borrow money again.
Why would anyone pay off a debt at full price if they could just wait, buy it on the cheap, and pay it off at a greatly reduced rate?
I would guess that the problem of determining who really can’t pay off their debt and who is trying to game such a system is a really hard one to solve.
Actually, because of how bankruptcy works… they day you walk out from the meeting with the judge is probably the best day to go and buy that new car you’ve always wanted and your mailbox will be flooded with credit card offers. (This information is from two different acquaintances who did file bankruptcy) Apparently, you can only file once every so many years… so the creditor knows that you can’t file bankruptcy again for a while and they have you on the hook for the money.
I don’t know if the judge can bar you from taking out new loans… or if something has changed since the people I know who filed (circa 2006 timeframe)…
Because it will show up on their credit rating?