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[ira01]

Ira, actually, I would start at the outstanding loan value.  I think we have some issues with origination, collections and definitely the failure to sell at debt sale.

Well, this is putting a lot of issues into the mix.  While there are certainly problems with origination and collections, I'm not sure what that has to do with mothandrust's loan that just went into BK (unless he can show problems with the origination or collections process followed on that loan).  Speaking just about the delay in the JDB sale, I see no non-frivolous argument why the remaining principal value would be an appropriate measure of damages.  There is no JDB in the world that pays 100% for bad debt -- how would they make any money even if they managed to collect?

I really don't think it's reasonable for Prosper to deviate from the LRA

As you know, I have often taken great umbrage at Prosper's attempts to circumvent its obligations under the legal agreements.  Prosper should absolutely be bound by its agreements (especially considering that it is the one who drafted them).

on the off chance that it may get more from JDBs in the future.  There is an agreement for a reason.  Prosper has not asked for leave to deviate from it, and mothandrust suffered actual injury from Prosper's failure to abide by the agreement.

The problem with this argument, however, is that the legal agreements do not obligate Prosper to hold the debt sales on a specific schedule.  The Lending Agreement specifically states "Notes that are in default might not be offered for sale at the point at which they are exactly 120 days past due, but may remain unsold for some period after they are 120 days past due."  So what is a reasonable "some period"?  I don't know.  Prosper has previously stated that the plan was for quarterly debt sales, although last year there were only three debt sales, and fewer in 2006 (one, perhaps?).  Since it has "only" been less than 4.5 months since the last debt sale, I don't think Prosper has crossed the line into an unreasonable delay yet, especially since the prices offered are so far off of the previous prices.  Certainly if Prosper doesn't sell the loans by the end of the year (and especially if the prices it does sell for are less than what it was offered last month) Prosper will have a big problem. 

All this stuff about tax write-offs is very theoretical.  I don't know enough about tax law (other than what I sign every year) to guess whether you can deduct the bad debt if you don't itemize, and don't know whether mothandrust itemizes.  I also don't know if mothandrust would want to invite scrutiny over a Prosper loan.

You do not need to itemize to deduct non-business bad debt -- it is listed on Schedule D, not Schedule A.  And I don't think it would invite much scrutiny (especially since he's only in for a snickers, which has been partially repaid).

Although I am not a tax expert, I think the only real question mark is whether mothandrust will have any long-term capital gains this year.  I assume probably yes, since I believe he has some stock and/or mutail fund investments.  As long as he does, then he would have been required to use his long-term capital loss (had the loan been sold to a JDB before BK) to offset long-term capital gains, so he would have only received the 15% benefit I explained above.  However, if he will have no long-term capital gains this year, he could have received the full marginal tax rate benefit from the loss (not the capital gains rate) because if you have no long-term capital gains, you are allowed to use up to $3,000 of long-term capital losses to offset regular income.  That is the only way I see that mothandrust wouldn't come out substantially better from the BK than if the loan had been sold to a JDB in late-April. 

[xraider]

Yes, Ira, if I were writing to Prosper, I'd throw the whole mess into the mix and demand repayment.

I do not think it's commercially reasonable for Prosper to decide when -- or whether -- to have a junk debt sale.  The clear implication is that the sales will be regular, and if not 120 days after a loan goes late, then shortly thereafter.  I have given Prosper some wiggle room on this, but I'm running out of patience.  I keep repeating this (beating a dead horse) but Prosper, as my fiduciary, has an obligation to act on my behalf -- not its own -- and to keep me informed. 

I have not consented to have my lates linger for 5 months, or 6, and particularly not 8.  Should my 4+ go bk, I will demand that Prosper provide me with a full history of all collection attempts and debt sale offers, or, in the alternative, repay my principal.  And, if I'm dissatisfied with the collection attempts, we'll see.....