4 ms·

If person A borrows money from person B, and person B (for whatever reason) writes off and forgives that debt, person C should not be able to swoop in, buy the

by LocalH 3y ago

If person A borrows money from person B, and person B (for whatever reason) writes off and forgives that debt, person C should not be able to swoop in, buy the discharged debt, and reactivate it. The situation you described is not at all what this is referring to. My credit is shit, because when I was much younger, I stupidly ran up a bunch of debt and was unable to pay it. However, the creditor completely forgave the debt a few years down the road, near the end of December, and as I looked into it, the IRS counts that as reportable income and thus affected my taxes that year. Should some third party be able to resurrect that, a third party to whom I never owed money? I don't really think that should happen in a just system. I wonder if having proper documentation to the debt cancellation would be a defense against ugly shenanigans like this. If our governing system wants respect, then they really shouldn't be using the dirtiest tactics they possibly can to extract every drop of blood from so many stones. The state having a monopoly on violence does not mean that all use of that violence is justified or appropriate.

johngladtj 3y ago
A write off is not debt forgiveness, nor does it remove your responsibility or their right to collect on that debt. From your comment it's clear to me that you don't actually know what's happening here. When a company "writes off a debt" what that means is that they record and expense in their income statement. Effectively they are saying "we don't think we can get all the money we are owed, and so we are reducing the estimated value of that asset in our balance sheet". This write off has accounting implications, and may have tax implications (since otherwise they'd be taxed on interest they are not receiving). Importantly this write off does not change the contract, or the money owed. It just means that when (if) some or all of the money is paid, any extra beyond the current carrying value of that asset is allocated to the companys income (and taxes are paid on that). The second thing you seem to misunderstand is that company c doesn't come out of nowhere. They simply purchased the debt from the original lender (perhaps because they are specialized in collecting from defaulting borrowers), and are collecting the debt they are owed.
- LocalH 3y ago
  Ok, you're probably right about the difference between forgiveness and writing off, and I'll accept that. On that last sentence though, how is that not "coming out of nowhere"? They're not the original company owed, they had nothing to do with lending for the original debt, the only reason they're even there is because they very specifically "specialized in collection from defaulting borrowers" - that is a grift as far as I'm concerned. Such debt collectors don't always follow the law in getting what they claim as "their" money (although to be clear I am not making a generalized claim to all such collectors). Morally speaking, the original debtor does not owe anyone but the original lender, or any company that acquires that lender, as far as I'm concerned. Debts should not be able to be transferred between lenders except for the cases of outright acquisition. Nobody should be able to buy up these debts in this fashion. This world needs less middlemen, not more.
  - johngladtj 3y ago
    If it makes you feel better you can think of it like company C being hired by the original lender to collect on the debt, in return for a cut of the proceeds. The main difference is they are paying the original lender for the privilege of doing. This is a good thing, for everyone involved since it gives lenders an additional avenue to recover at least some of the cash owed, hence making lending less risky and subsequently cheaper for borrowers.
    - svnt 3y ago
      This is an assumption which at point in history is primarily just a narrative the credit companies like to propagate to further support of their profits. Why do they need to charge higher rates for unsecured debt if it can trivially be escalated to better than secured due to what is effectively a historical legal loophole?
      - johngladtj 3y ago
        I'm not sure what you mean? None of this changes where the debt is located on the capital stack, and it certainly doesn't turn an unsecured debt into secured debt. It feels like you're just using terms you don't understand to justify your preconceptions, even when it doesn't make any sense. Interest rates are higher to to reduced offers to provide the debt as a result of the higher default risk those debtors have. The risk adjusted return on all this tends towards the risk free rate regardless.

by LocalH 3y ago

johngladtj 3y ago

A write off is not debt forgiveness, nor does it remove your responsibility or their right to collect on that debt. From your comment it's clear to me that you don't actually know what's happening here. When a company "writes off a debt" what that means is that they record and expense in their income statement. Effectively they are saying "we don't think we can get all the money we are owed, and so we are reducing the estimated value of that asset in our balance sheet". This write off has accounting implications, and may have tax implications (since otherwise they'd be taxed on interest they are not receiving). Importantly this write off does not change the contract, or the money owed. It just means that when (if) some or all of the money is paid, any extra beyond the current carrying value of that asset is allocated to the companys income (and taxes are paid on that). The second thing you seem to misunderstand is that company c doesn't come out of nowhere. They simply purchased the debt from the original lender (perhaps because they are specialized in collecting from defaulting borrowers), and are collecting the debt they are owed.

LocalH 3y ago
Ok, you're probably right about the difference between forgiveness and writing off, and I'll accept that. On that last sentence though, how is that not "coming out of nowhere"? They're not the original company owed, they had nothing to do with lending for the original debt, the only reason they're even there is because they very specifically "specialized in collection from defaulting borrowers" - that is a grift as far as I'm concerned. Such debt collectors don't always follow the law in getting what they claim as "their" money (although to be clear I am not making a generalized claim to all such collectors). Morally speaking, the original debtor does not owe anyone but the original lender, or any company that acquires that lender, as far as I'm concerned. Debts should not be able to be transferred between lenders except for the cases of outright acquisition. Nobody should be able to buy up these debts in this fashion. This world needs less middlemen, not more.
- johngladtj 3y ago
  If it makes you feel better you can think of it like company C being hired by the original lender to collect on the debt, in return for a cut of the proceeds. The main difference is they are paying the original lender for the privilege of doing. This is a good thing, for everyone involved since it gives lenders an additional avenue to recover at least some of the cash owed, hence making lending less risky and subsequently cheaper for borrowers.
  - svnt 3y ago
    This is an assumption which at point in history is primarily just a narrative the credit companies like to propagate to further support of their profits. Why do they need to charge higher rates for unsecured debt if it can trivially be escalated to better than secured due to what is effectively a historical legal loophole?
    - johngladtj 3y ago
      I'm not sure what you mean? None of this changes where the debt is located on the capital stack, and it certainly doesn't turn an unsecured debt into secured debt. It feels like you're just using terms you don't understand to justify your preconceptions, even when it doesn't make any sense. Interest rates are higher to to reduced offers to provide the debt as a result of the higher default risk those debtors have. The risk adjusted return on all this tends towards the risk free rate regardless.