By Scott A. Scurfield
Radio, television, and the internet are full of ads promising to magically eliminate 50% or 60% or more of your credit card debt (and other unsecured debts like personal loans). It sounds too good to be true…but is it? Could there be a legal way to eliminate debt without actually paying the money you owe?
The short answer: No! Programs that promise to eliminate, terminate or cancel debts by means other than paying the money owed are simply selling financial snake oil. There are only two real, legitimate and effective ways of truly “eliminating” debt: paying it off, or getting it discharged in bankruptcy. Anyone who claims differently, especially when they charge for their “services,” is not being honest.
II. Where did this “scam” originate?
Economic or societal conditions that produce fear often bring out unscrupulous people who try to capitalize on that fear. Remember the infamous “Y2K Bug,” when so many were convinced that our banking system (maybe even society itself) would collapse when the computers would not be able to recognize “2000” as the year and reset themselves to “Year 0” and wipe out all bank accounts? How many people lost their money when the clock struck midnight on January 1, 2000? None we know of. On the other hand, how many people made money by capitalizing on that fear, by selling “survival shelters,” canned food, weapons, gold coins, and the like?
The fear on which the scam artists are now trying to capitalize is the fear of personal economic collapse. Too many people incurred too much credit card debt for too long and their financial chickens are now coming home to roost…and they are looking for an easy way out without losing their house or their cars or the other belongings that define their standard of living. When that fear turns into desperation, they can become easy prey for those promising “something for nothing.”
III. How the scams work…or don’t work.
So how do scammers try to dupe people out of money? And why don’t their methods work?
- Some claim to have special or unique knowledge of old or obscure statutes (other than bankruptcy laws) that enable you to erase debts by simply citing these “laws.” The scammers would have you believe that these “laws” say that credit card companies were never properly authorized to extend credit and therefore cannot collect from their account holders, or something along those lines. These misguided theories trace their roots to scams that made the rounds in the 70’s in which scammers advised taxpayers (for a fee) to refuse to pay income taxes because the taxes themselves were unconstitutional, and then gave the taxpayers “legal authority” to rely upon. It didn’t work then…and it won’t work now. But this has not stopped smooth-talking, persuasive con artists from convincing gullible and desperate people deep in debt into giving it a shot…for a fee, of course.
- Other scammers claim to have special skill in negotiating debts down to low or zero balances simply because of their good relationships with credit card companies. They claim to have special knowledge, experience or methods which allow them to act as a wall between you and the credit card companies. They would have you believe that they can frustrate the credit card companies into giving up on collecting from you, or at least reducing the amount you have to pay by as much as half or more. Again, their willingness to do this for you is contingent on you first paying them a fee for their services.
- Still others are more low-key and borderline-legitimate; they simply act as a middleman between you and your credit card companies and try to negotiate a “better deal” for you, once again for a fee.
These scams work on some people because they are so weighted down with debt and so tired of their creditors trying to collect it that they are desperate enough to try almost anything to get out of paying it. The scammers prey upon this desperation. They collect their fees from the “clients,” pretend to go to work for them, and then often disappear or come up with excuses why the client’s case is “special” and not eligible for the relief they promises before the collected their fees. At the end of the day the client is left with the same debt plus more interest and late fees, in a worse condition (minus the scammer’s fee) than when he started.
The scams are ineffective because they are not based on any valid or legitimate law or authority. When you apply for a credit card, you are given a booklet of small print called a “Customer Agreement” or something similar. It says, in long-winded “lawyer-ese,” that when you make a credit card purchase of goods or services, the card issuer (usually a bank) pays the seller on your behalf immediately, and then you pay the bank back at the end of the month. If you take longer than a month or so to pay the bank back, then you pay interest on the bank’s money. It’s really that simple. If you don’t pay the bank back, then they can sue you for the money, plus interest. Anyone who tries to tell you that you don’t owe the credit card issuer for the charges you incurred is either mistaken or lying.
However, owing a debt is one thing; paying it is another. In our legal system there is no “debtors prison.” Unless a person who owes money commits a criminal act (including writing a bad check), he cannot be imprisoned for simply not paying what he owes. His creditors can hound him for payment by telephone and mail; sue him and obtain judgment; in some states, garnish his wages; force him to disclose the location and value of all his property; sit on their judgment and wait for him to obtain property for many years; and once they find any property he owns, send the sheriff out to seize and sell it. But they can’t put him in jail, much as they might like to. As anyone who has tried to collect a debt from a “deadbeat” can attest to, it is extremely difficult to collect money from someone who owes it but refuses to pay.
IV. What happens when these scams fail, as they invariably do?
Debt elimination scams start from the standpoint that you don’t have to pay your unsecured debts in full, so most if not all recommend ceasing your payments. Once you do that, your creditors can exercise a number of options, including:
- Ramping up their telephone calls and letters. As long as they act within the bounds of the Fair Debt Collection Practices Act, creditors can continue sending you letters and calling you until you pay the debt. Mail can be ignored and calls can be screened, but most people find these continual efforts to be annoying and stress-producing. More to the point, they are usually the reason the person went to the “debt eliminator” in the first place, again spotlighting the ineffectiveness of the scammers.
- Turning your account over to a collection agency. The threat that “if you don’t pay, we’ll turn you over to a collection agency” sounds worse than it really is. Collection agencies cannot do anything more to collect a debt than the creditor can. They may act more aggressively and obnoxiously because they specialize in being relentless. But the actions they are allowed to take in collecting a debt are no different simply because they call themselves a “collection agency.” They are bound by the Fair Debt Collection Practices Act just like creditors are.
- “Charging off” your account. That does not mean the debt does is erased; it means the creditor has either reduced the balance due voluntarily, or chosen not to pursue you to collect it at all because they believe you have no ability to pay. It also means they report to the credit reporting agencies (the three companies that report your financial history in the form of your credit score) that you failed to pay a debt. That fact can have a devastating effect on your credit rating, if it is not already in the tank. And at least in theory, any forgiveness of debt is considered income by the IRS, so you must report it and pay tax on it as such.
- Filing suit. A creditor, or any other agency to which they sell your account, may as a last resort file a lawsuit against you to collect the amount owed on your account. Unless you have some legal defense (like the expiration of a statute of limitations, or unauthorized use of your account), they will in all likelihood obtain a judgment against you. Once that judgment is final, the creditor can then direct the sheriff to seize your property (if any can be located) and sell it at an auction sale, with the proceeds of the sale (less costs) going to the creditor to be applied toward your debt. There are practical difficulties and costs involved in all of these steps, and filing suit is seen as a last resort by creditors because of those difficulties. But it is available as a remedy and can generate much angst in debtors. The important point for purposes of this article is that the scammers have absolutely no ability to stop creditors from filing suit against you.
The worst effect of these scams? Not only do they NOT help your financial situation, they make it worse. Creditors who see you engaging in sketchy, desperate measures to avoid paying them are less likely to work with you in the future should you attempt a legitimate workout with them. They become less flexible on waiving interest and fees. Late charges continue to accrue. The hole gets deeper.
V. How can I really get rid of my debt?
As mentioned at the beginning of this article, there are only two legitimate, effective ways of eliminating debts – paying them or getting them discharged in bankruptcy.
The first step toward climbing out of a hole is to stop digging the hole any deeper. That means you must stop incurring more credit card debt. Some experts advocate the drastic step of cutting up your credit cards (and using cash instead) so that you are not even tempted to make an impulse purchase of that cute dress you simply must have in a weak moment. Going to that extreme might not be feasible because of the practical need for “plastic money” in today’s economy for things like renting a car or a hotel room or paying utility bills, or even for the personal security of not carrying large sums of cash. Other experts advocate sending a check to the credit card company as soon as you make a purchase on the card, so that the reality of the purchase sinks in immediately. Some folks in debt may suffer from an actual “shopping addiction” that requires counseling or therapy or even “recovery” programs to control. But the bottom line with any of these measures is simple: the first step in getting rid of your debt is to stop creating it, by any means necessary.
If you have stopped digging the hole any deeper and you have the ability to pay off your debts over time, there are legitimate debt counseling services that can help you. Organizations like Consumer Credit Counseling can help you budget your living expenses and reduce the amount of harassment you have to endure from creditors while you work on paying off your debts. They can also help you negotiate with your credit card companies and other creditors to reduce or eliminate interest and penalties on your debts. Most importantly, they can counsel you on how to budget your income and help you create a roadmap out of the bad financial situation you are in. None of this will magically improve or repair your credit score. Only a track record of timely payments can do that. But working with a reputable consumer credit counseling agency can at least show you the way.
There is one tried-and-true method of reducing an interest rate on credit card balances or even principal balances owed – ask! In most cases, credit card companies are willing to voluntarily lower the rate they charge you on your unpaid balances if you contact their customer service department and make a request based on your financial condition. They may ask for verification of your condition (personal financial statement, tax returns, etc.), but simply as a matter of good customer relations, they will more often than not reduce your rate to zero percent or something only slightly higher. In fact, this is exactly what many “debt reduction” or “debt consolidation” or “debt elimination” companies do – they simply call your credit card issuers and ask them to lower the interest rate you pay. There is no real reason why you cannot do this yourself and avoid paying these “debt eliminators” a fee.
If you don’t have the ability to pay your past debts, and your creditors still are hounding you for payment and threatening to sue you or foreclose on your property, then your money is far better spent talking to a bankruptcy lawyer than being wasted on a “debt eliminator.” You can learn about bankruptcy by visiting our web site, but in a nutshell, bankruptcy allows honest but unfortunate people with excessive debt and inadequate ability to repay it to keep most or all of their property while having their debts discharged and beginning a new financial life with a “fresh start.” Bankruptcy is the only way to truly eliminate debt without paying it.
The adage “If it sounds too good to be true, it probably is” applies to the “debt elimination” scam industry. Just like there’s no shortcut to dieting (calories in must be less than calories out), there’s no shortcut to eliminating credit card debt…other than bankruptcy. If you would like more information on how bankruptcy could help you, please visit our web site or call us at (919) 847-4804 or 1-877-847-4807.