Debt Buyback for Businesses, Not for Consumers
Feb 12th, 2009 | By Rob | Category: Government
The Wall Street Journal has just reported that a provision allowing corporations to defer taxes when they buyback their debt at a discount from their bond holders / creditors will remain in the economic stimulus package. While I support the provision, I find it unfortunate that Congress has not extended the proposal to consumers who reach a deal for partial debt forgiveness with their creditors.
If you have been following the issues surrounding credit card debt among consumers, you’ll remember that a group of credit card companies and consumer advocates appealed to the government this past fall on an issue very similar to the one under consideration for businesses. They sought to extend the amount of time that a consumer could pay under a partial debt forgiveness agreement with their creditor. Currently, debtors only have 3-6 months to pay off the amount of credit card debt that is not forgiven by their credit card company. Part of the reason that the time limit is so short is because the banks must declare the amount of money that has been written off under state law and individuals must declare the debt forgiven as income and pay taxes on it.
If I’m wrong in comparing the two provisions, I hope that someone will let me know why it is a bad comparison. Until that time, my question to our government officials is: Why do businesses who buy back their debt at a discount from their creditors deserve a tax break on it and individuals who reach a deal to pay a lesser amount to their credit card company in exchange for settling their debt do not?
