This has nothing to do with bankruptcy or "defaulting."
Many companies, and a lot of Medical companies, don't want to chase ... shall we call them "exceptionally delinquent accounts." People who haven't paid in 90-180 days or more.
So a whole industry pops up in the debit reclamation space. A patent owes them (let's keep this simple math) $1,000 and is six months past due. So they sell the debt to a collection agency for $500. The debt collection agency has "bought the right" to attempt to claim $1,000 of debt from the delinquent payee. The hospital has "washed their hands of the issue," regardless if the collection agency actually collects or not doesn't matter to hospital. They got $500 and they are done with it, the item is closed on their books.
It's not uncommon to see these debts get resold a couple of times as well as various agencies struggle to collect. By the time these repeats itself a couple of times, the amount "the next agency" is paying to "buy the right to claim the $1000 debit" could be as low as $10 or less.
That's where originations like these step in. They raise money, and then step in as that 3 or 4th "debt collection agency." But instead of trying to collect the debt, they forgive it and stop the cycle.
They are doing great work! And it's a great way to donate money to if you're trying to make a lot of people's lives much better with just a few dollars.
And, then, once the debt is forgiven. The tax man steps in and says "hey, somebody gave you $1000 in forgiving that debt, you owe us income tax on that."
Also, if you are somebody who's very past due on their bills: try negotiating. Whoever you are talking with may very well no longer be the original person you owed the debt to, and may have "purchased" that debt for a fraction of the original dollar value. Any amount above that dollar value they purchased it for is making them money, and getting them out of your life.