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Even clothes in dreadful condition have a small value rather than a pay to dispose situation occurring. There's an entire industry of textile recycling/recovery - cotton clothes get sold as rags to trades; polyester gets melted and reused and so on

The one my mother volunteers in requires items to be on the rack for 48 hours before volunteers can buy them. That is (or was when I helped her out occassionally a decade+ ago) fairly regularly flouted if the paid manager isn't there, though; however they still have to buy them.