The grimy business of buying and selling US debts

[webfact]

The grimy business of buying and selling US debts
By Marysia Nowak
BBC News

WASHINGTON: -- Last weekend, US TV show host John Oliver bought and forgave $15m (£10.3m) worth of medical debt, delighting hundreds of people who had defaulted on the sky-high expenses from life-threatening illnesses. It only cost him $60,000 plus a $50 set-up fee. So is it that simple?

Mr Oliver's show, Last Week Tonight, focused on debt collection companies that buy debt from banks for a small percentage of their actual value.

Mr Oliver set up a company and bought a total of $15m of debt belonging to nearly 9,000 people from hospitals in Texas.

Full story: http://www.bbc.com/news/world-us-canada-36468022

-- BBC 2016-06-09

[maoro2013]

Called debt factoring. So what?

[djlest]

why do i have to go to the BBC to read something unrelated to me or Thailand?

[metisdead]

why do i have to go to the BBC to read something unrelated to me or Thailand?

This is in the World News section and World News is for topics not related to Thailand.

[Srikcir]

Oliver bought and forgave $15m (£10.3m) worth of medical debt, delighting hundreds of people who had defaulted on the sky-high expenses from life-threatening illnesses.

That delight will be short-lived.

In the USA debt forgiveness is considered taxable income for the debtor. So the private debt owed to the private medical practices and medical institutions is transmuted into income taxes owed to the IRS. That means that even for the taxpayer who had no taxable income because of limited income, expenses exceeding income or flow-through business losses now owes taxes. It might mean that a taxpayer who annually qualifies for earned income tax refunds (a vital component for low income people's financial survival) no longer can claim such refund.

If these debtors cannot make payment arrangements with the IRS, they'll have to file bankruptcy. Guess who has first priorty to any assets - the IRS.

On the plus side Oliver now owns a company that has an embedded large business loss. He might be able to find a profitable taxable business that is seeking to reduce its own tax obligations and one way to do that is to buy debt from another business! So theoretically Oliver could make a profit.

[Credo]

Oliver bought and forgave $15m (£10.3m) worth of medical debt, delighting hundreds of people who had defaulted on the sky-high expenses from life-threatening illnesses.

That delight will be short-lived.

In the USA debt forgiveness is considered taxable income for the debtor. So the private debt owed to the private medical practices and medical institutions is transmuted into income taxes owed to the IRS. That means that even for the taxpayer who had no taxable income because of limited income, expenses exceeding income or flow-through business losses now owes taxes. It might mean that a taxpayer who annually qualifies for earned income tax refunds (a vital component for low income people's financial survival) no longer can claim such refund.

If these debtors cannot make payment arrangements with the IRS, they'll have to file bankruptcy. Guess who has first priorty to any assets - the IRS.

<snipped>

I think that's wrong. The money never passed through the hands of the people whose debt was forgiven. They never had the money so it can't be taxed. If he gave them the money to pay the debt, then it is income and would be taxable, but the medical expenses would be deductible.

[NumbNut]

Oliver bought and forgave $15m (£10.3m) worth of medical debt, delighting hundreds of people who had defaulted on the sky-high expenses from life-threatening illnesses.

That delight will be short-lived.

In the USA debt forgiveness is considered taxable income for the debtor. So the private debt owed to the private medical practices and medical institutions is transmuted into income taxes owed to the IRS. That means that even for the taxpayer who had no taxable income because of limited income, expenses exceeding income or flow-through business losses now owes taxes. It might mean that a taxpayer who annually qualifies for earned income tax refunds (a vital component for low income people's financial survival) no longer can claim such refund.

If these debtors cannot make payment arrangements with the IRS, they'll have to file bankruptcy. Guess who has first priorty to any assets - the IRS.

<snipped>

I think that's wrong. The money never passed through the hands of the people whose debt was forgiven. They never had the money so it can't be taxed. If he gave them the money to pay the debt, then it is income and would be taxable, but the medical expenses would be deductible.

Hope you're right Credo, it would be a travesty if these poor folks get hit with a tax bill for money they never really possessed. And all due to an antiquated medical system where the hen house is being run by the foxes.