how can a company purchase debt for less money than what the debt is worth?

Question

Recently heard of a church purchasing $3.3 million in resident debt for 15k and then cancelling all of it.

In: 9

Answer 1

### How does one purchase debt for less than it is worth?
Peter borrowed $10 from Paul. Paul has been asking Peter for the money for many years. Peter hasn’t paid up.
Along comes Patrick. Patrick tells Paul how about I pay you $5 and you transfer Peter’s IOU to me. I’ll find a way to collect from Peter.
Peter agrees.
This is the basics of how you can buy debt for “less” than it is worth.

### $3.3 million and $15k? Something sounds fishy!
In this case it is likely that there is some tax loop hole involved where the $3.3 million sold to the church at $15k is actually $15k in sale +$3.285 million of donation to the church in kind which has a nice tax benefit.