When the debt activism group Strike Debt began planning its Rolling Jubilee, the goal was relatively modest: They would raise $50,000, use it to buy distressed medical debt on secondary debt markets, and then, rather than hounding the debtors like the collection agencies that buy most of this sort of debt, they would wipe it out.
But that was before the Rolling Jubilee caught fire in the public imagination, garnering attention from the likes of Boing Boing, the New York Times, and Fortune Magazine. Even before the group had webcast its star-studded telethon, it had already surpassed its fundraising goal. To date, they’ve raised nearly half a million dollars — enough to buy and forgive nearly $10 million of debt.
Most of that money is going to go to purchasing a big hunk of distressed medical debt next month, but as a sort of proof-of-concept, Strike Debt has already spent $5,000 to buy $100,000 of distressed medical debt owed by 44 people in upstate New York.
Yesterday, the activists gathered to send out the notifications to the unsuspecting recipients of this first round of debt forgiveness. Since aggressive collection mailings often drive debtors to ignore envelopes they don’t recognize, the forgiveness letters are packaged in a small box wrapped in festive paper.
“We want to make sure they open it,” said Yates McKee of Strike Debt. “We also like the idea of it having a holiday feeling to it.”
“Seasons Greetings from Strike Debt!” begins the letter.
“We write with good news: the above referenced account has been purchased by the Rolling Jubilee Fund, a 501(c)(4) non-profit organization. The Rolling Jubilee Fund is a project of Strike Debt. The mission of this project is to buy and abolish personal debt. We believe that no one should have to go into debt for the basic things in our lives, like healthcare, housing, and education.
You no longer owe the balance of this debt. It is gone, a gift with no strings attached. You are no longer any obligation to settle this account with the original creditor, the bill collector, or anyone else.”
After the first flush of positive press, the Rolling Jubilee has encountered some skepticism. Yves Smith of the Naked Capitalism blog has called it “a gimmick with a tax risk.” The jubilee puts borrowers at risk, Smith argues, because forgiving the debt could be counted as a taxable windfall for the debtors, potentially making their situation worse rather than better. Strike Debt’s claim that the jubilee won’t have tax implications are dubious, Smith argues, because 1) by buying the debt in the first place, Strike Debt is engaging in commercial activity, 2) the recipients are likely to be middle class, and therefore ineligible for tax exemption as a “charitable class.” She concludes:
“Sophisticated taxpayers get tax opinions from law firms with recognized expertise in tax matters, or ask for rulings from IRS (a non-starter here), or document their positions with heavily researched memos. Rolling Jubilee should get one of its sympathetic celebrites to write a check to a serious tax lawyer to take a proper look.”
Rolling Jubilee organizers say that’s exactly what they’ve done. “I’m a little mystified by the critiques based on the tax implications,” says the tax lawyer who has been advising Strike Debt. (The lawyer works in the tax department at a top international law firm — her employer knows she is advising Strike Debt, but doesn’t want its name attached to the project.)
The tax lawyer dismisses the concern that the Rolling Jubilee is engaged in commercial activity: “It doesn’t make a great deal of sense to me,” she said. “When Habitat for Humanity is helping people build houses, someone still has to buy the lumber. It doesn’t change their tax status. The critical thing is that this is a not-for-profit organization, and it’s not engaged in trying to make money.”
Furthermore, the lawyer says, recipients don’t have to be poor to receive tax-free debt forgiveness. “This is focused on medical debt,” she says, “and people with health problems can be categorized as distressed. You don’t need to show that they’re impoverished.”
Even if it doesn’t run afoul of tax laws, the campaign’s organizers acknowledge that $10 million of debt is a drop in the bucket, hardly enough to overturn a global system producing every greater amounts of crushing debt. The larger goal, they say, is to start a conversation about the way that debt plays in society. “This is a social hack,” says Laura Hanna of Strike Debt. “A lot of people didn’t know that their debts were on fire sale, that their debts could be bought for pennies on the dollar, just not by them.”
What the Strike Debt will do with the conversation it has started is something they’re still figuring out. In recent months chapters have sprung up in cities across the country, and organizers are planning a national conversation about next steps pegged to Martin Luther King’s birthday.
In the meantime, they have at least two more debt buys planned in the coming months.