anrathrowaway

Here's the basic idea:

Joe Smith gets in a car accident, and needs a ton of surgery. Has no insurance. Ends up taking out $100,000 in loans. This loan is then owned by a bank somewhere. They attempt to collect for a year, Joe ignores their calls, and doesn't pay. Or maybe does, a little, but times are tough, and misses lots of payments. Eventually gets fed up with collectors harassing him and stops paying.

At this point, the bank is in trouble: they can't really get any money out of Joe, and they spend money to keep hounding him. The debt is something that can be bought and sold just like anything else, so they put it on a market: "If you want to try to squeeze some cash out of Joe, go ahead, but we're done with this." That's why you can buy it at a discount: normally, someone who purchases a debt like this thinks they can manage to get more than $5k out of Joe. Often by settling: "We will accept $10k to abolish your $100k in debt." So Joe gives them $10k, the debt is erased, the collector makes some money, and the bank is sorta screwed, but has $5k more than they expected.

Now, what Strike Debt is doing is acting as the part of the collector, but then just abolishing the debt without demanding payment from the debtor. $100k of debt gone for a $5k payment! The bank still has $5k more than they would have had, so they're happy, and Joe has no more debt, so he's happy, and Strike Debt rescued someone from an insane debt that was the result of unfortunate circumstances, so they're happy.

Everybody wins.

(of course, I'm glossing over some details here, but that's the basic idea, in my understanding)

(oh, I should also note, that due to the magic of compound interest, depending on how long Joe was paying before he said "screw this," he may have already paid back over $100k.)

60% of bankruptcies in the US are due to medical debt.

I just came here to say thanks. This is a fantastic idea, and one that actually helps tons of people that are in need. Keep it up! Make sure to disregard some on the left who claim this is supporting banks, they don't know what they're talking about.

Often they only sell these debts as a package with a bunch of others. http://en.wikipedia.org/wiki/Tranche

http://www.reddit.com/r/IAmA/comments/137owy/iama_members_of_strike_debt_ama_about_buying_and/c71j6zg