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Modern Debtor Prison – States Do Dirty Work for Debt Collectors

May 25, 2018

Sometimes there are traps for regular people set by predatory debt collectors. This is one of them.

Scam Alert

There is a disturbing trend in debt collection these days: getting the state to do the dirty work of intimidation and collection. In some jurisdictions, notably Illinois, debt collectors are actually managing to get people who supposedly owe them money thrown into jail. This is obviously a dirty trick and happens primarily because the debt collectors are managing to set cases for trial where attendance in mandatory; whereas in most civil cases failure to show up for trial results in a default judgment, in these cases the judge issues a warrant for arrest.

The subject of our Scam Alert today, however, is a little different. A scam involves trickery and deception, and that is what is happening in Missouri and elsewhere. In some places, Payday loan companies and other vulture companies are issuing short-term loans. What they do is require a post-dated check for the repayment.

Of course if you have a job – and keep it – and the post-dated check is made with that in mind, then when the money rolls in, you just pay off the debt. Of course you do it at heart-breaking interest rates, but at least theoretically that is what you bargained for, and there’s no real confusion about what the deal is costing. The problem comes in if something keeps you from getting that money you expected. In most loans, if you fail to make a payment you can be sued, and generally it is not a fun thing to be sued. If you have written a post-dated check, however, if you fail to make the payment (and cover the check), you are immediately subject to a civil penalty doubling the value of the check (in Missouri), and you may also be prosecuted to passing “bad checks.” Many lawmen are willingly allowing themselves to become the hitmen for these loan companies.

This is a “scam” because no one tells the people borrowing the money that failure to pay could result in an instant doubling of the loan or criminal prosecution, so payday loans, which charge such a high rate to account for the fact that people so often cannot make the payments, gets an extra level of security against default. And foists the risk of criminal enforcement onto people who don’t know what is happening.

It is also a perversion of the law. Bad check laws were created to protect people who trusted the people writing them checks – writing a check is, legally, a sort of guarantee that the check-writer has the money to pay for the check in the bank at the moment the check is written. Writing a check without the money in the bank is a type of fraud. But when a payday loan company accepts a post-dated check in exchange for a loan, they know the money is not there. There is no fraud when the check is written – and fraud requires that the intent to rip off the victim be present at the time the action which does rip them off (writing the check) is done. What’s happening here is that people who made a mistake about having money at a certain point in the future are being thrown into jail for that mistake. And the people on the other side of the transaction – the payday lenders – are perfectly aware that their customers have trouble with money – that’s who they target.

It is morally totally wrong for this to happen. But it is happening. So the lesson is, never pay for a loan – any loan under any circumstances – with a post-dated check. If the money isn’t in the bank, do not use a check.

Two Hidden Legal Risks of Debt Consolidation Loans

May 25, 2018

Debt consolidation is combining outstanding loans (debt) into a single package (consolidation). The debts therefore become one “new” loan, and instead of making several small payments on the loans you used to have, you make one larger payment on the new loan. Occasionally people ask whether debt consolidation is a good, economically constructive solution to credit card problems. Usually, the answer is that it is not. Certainly not as a solution all by itself. This article discusses some of the drawbacks of debt consolidation.

Debt Consolidation Loans

Debt consolidation is combining outstanding loans (debt) into a single package (consolidation). The debts therefore become one “new” loan, and instead of making several small payments on the loans you used to have, you make one larger payment on the new loan. Ideally and typically—and what has made debt consolidation loans popular as a home remedy for debt—the new loan is secured by some asset, often your home, and this allows you to obtain lower interest rates. Thus consolidation, in the final analysis, is the conversion of debt that is not secured into debt that is secured by some real asset, in exchange for lower interest rates. It can reduce your monthly payments considerably, and of course that could be very helpful.

It also converts “old” loans into new loans, giving them a new statute of limitations (new life for loans that could be at or near their time of expiring). And it can even turn loans with short statutes of limitations into loans with long ones).

Why Doesn’t Debt Consolidation “Work?”

Economics

As a pure financial transaction, exchanging a lower interest rate for a security arrangement can be a very reasonable decision. Why then has it been such a disaster for so many people? Risk. Most people entering into complex financing are not able to assess risk and account for it, particularly when they are under economic pressure—which they usually are when they consider debt consolidation loans. Thus people systematically underestimate the risk that they won’t be able to make the payments on the new debt.

Additionally, since most people do not really want to go into debt in the first place, the existence of large credit card debt is indicative of other problems, either too little money or a tendency to overspend on unnecessary items. These issues are more likely to be made worse by the sudden reduction of economic pressure and the sudden, apparently greater amount of money or credit available to be spent.

The Hidden Risks of Debt Consolidation

In addition to these “systemic” issues, there are two other main hidden costs of consolidation that should be considered: loss of flexibility, and the nature of secured debt versus unsecured debt.

Consolidated Loans are Less Flexible

When you have ten loans for different things, from automobiles to credit cards, you have flexibility if hard times strike. If you simply cannot make your payments, you can give up some, but not all, of the things you have purchased. You can let some, but not all of the credit cards go into default. This is certainly not a happy thing, of course, but it raises the possibility of individualized debt negotiations, debt forgiveness, or even missed statutes of limitation. Again, these are not the choices and hopes of someone in flush economic conditions, but they are real options facing many people right now. In order for a debt collector to start garnishing your wages, it must find and sue you, must win, and then find your assets. It is an expensive and risky process for the debt collector if you fight. They sometimes drop the ball, and there are limits to how much of your wages can be garnished.

If everything else fails for you, you can declare bankruptcy, where homestead exemptions are likely to allow you to remain in your home.

The Nature of Secured Debt

The bigger risk of debt consolidation loans is the nature of secured, versus unsecured, debt. Remember that what powers the lower payments for consolidation is the existence of security—usually your home. Your home secures the debt, and that means that if you do not make your payments on the new debt, the lender can foreclose on your home and take it away. Foreclosures are generally “expedited” proceedings, meaning that your defenses are limited and the time for asserting them is restricted. In many states foreclosure is not even a judicial proceeding, although you have some legal rights you could assert in certain circumstances.

And what all that means is that instead of facing the prospect of years of battling over high-risk debts and questionable payoffs that could be trumped by bankruptcy, the banks can waltz into court and emerge in a very short time with your house. Put a little differently, your debt consolidation loan could make you homeless almost before you know it. And bankruptcy often, if not usually, will do nothing to protect you from it.

Anyone considering debt consolidation should think about these risks very carefully.

What to Do If You’ve Got Debt Troubles

May 14, 2018

If your bills are adding up and the bill collectors are beginning to bug you, you need to start taking action to protect yourself.

This video goes through the reasons you should win if you get sued for debt and begins the discussion on how to send the right signals to the debt collectors to leave you alone.

Why you Need us if you’re Being Sued for Debt

May 8, 2018

If you’re being sued or threatened with suit, the first thing you will have thought about was getting a lawyer. Probably the second thing you thought was that you could not afford one. Lawyers don’t all charge the same, or even the same way, but they are all expensive.

What Lawyers Charge

A lawyer with experience, in a medium to large city, will aim to make at least $100 to $300 per hour. It seems impossible, but it’s true, and that will translate into:

A flat charge of $1,000 to $1,500 for defending your suit;
$1,000 or more in retainer plus a contingent rate; or
An hourly rate of $150 per hour.
Or some variation essentially equaling the same thing.

Now, not all lawyers will charge that much, but most will – or as much as they can.

What makes it even worse is that very few lawyers are very familiar with the laws involved in defending you. That means they either have to charge you their rates while they learn what to do, eat the costs of learning what they’re doing, or NOT learn what they’re doing. And all of these things have obvious problems for a person needing a lawyer.

So it’s hard to afford a lawyer.

It’s Hard to Find a Lawyer in Debt Law

It’s also hard just to find one who does this kind of law. Many of our members have reported that they could not find a lawyer who would take their case at any price. And there aren’t many lawyers who do. Most big cities have a few – it’s hit and miss in small communities. That’s because people can’t afford them for this kind of law, considering what they have to charge, and because most lawyers haven’t actually heard of most of the laws involved – debt defense is NOT standard teaching in law schools.

Lawyers who DO know about debt law know that, if they represent you, they’ll be taking on a case against a lawyer who handles dozens, perhaps hundreds or thousands of these cases at a time, with a staff, documents, and network to support all that. It’s a tough job. It can be done, but the math isn’t real great, so not many lawyers handle debt law defense.

You Can Do it Yourself

Luckily, you don’t have to have a lawyer for debt defense. In fact, it may even be an advantage to represent yourself. And while it may seem scary, you’ll see that it really isn’t very. Let me explain.

The Number One Reason Most People Don’t Defend themselves

The biggest reason people don’t defend themselves is fear – they’re afraid of having to show up in court, stand up and talk to the judge, talk to a jury… etc.

In fact, most cases of every type never go to trial. Very few do – less than five out of a hundred, perhaps much less than that. If yours DOES go to trial, and for every appearance before a judge, you will be fully prepared. You’ll know much more than the lawyer on the other side – and you’ll know you know, and so, eventually, will the judge. There are a couple of reasons this is so.

Debt Law is Factory Law

America is drowning in debt, and debt cases are filed by the truckload. That means a few things to you.

First, it means that the people filing the suit know very little about the cases before they file them – they just don’t have time. If you talk to the lawyer before a court date, you’ll see someone utterly confident that they’ll win – without having a clue about anything having to do with your case. The lawyer probably will have never even looked at your case.

Second, it means that the companies need to keep lawyer time invested in cases to an absolute minimum. As I say, the lawyers never worry about losing your case – they worry about spending time on it. So they will conduct discovery or other pretrial preparations, if at all, in a standardized way, and they will respond to you in a standardized way. That means you can foresee what they will say and prepare (which we help you do). And it means you can disrupt them if you do things they don’t foresee, and we help with that, too.

Given all that, it means, thirdly, that most debt plaintiffs’ lawyers are not particularly gifted lawyers. They spend all day, every day, doing the equivalent of a bully walking up and down a beach kicking sand on everybody that’s smaller them. That isn’t exactly great conditioning for legal thinking, and most good lawyers regard it as a waste of their talent and don’t want to do it. That means there will be a good chance you’re at least as smart as the lawyer you will see in this case. And you should be a heck of a lot more motivated.

With our help, you will be more knowledgeable, too. The best way to get that help is by joining us as a member.

What if I Really Owe the Money – or Think I Do?

May 3, 2018

What if you think you really owe the money? Should you defend yourself? Here’s why you must defend yourself. If you don’t you run the risk of having to pay twice. And if you do defend yourself, you probably won’t have to pay. If that bothers you, give the money to somebody who really needs it.

Most People Being Sued Actually DO Owe Someone Some Money

If you’re being sued by a debt collector, you probably think you owe them the money, although it’s surprising how often people who do NOT owe anybody any money get sued. If that’s you – you still need to fight the case, it won’t go away by itself. But if you actually do owe somebody the money for which you are being sued, you still need to be careful.

And you should still defend yourself as well as you can.

You must make the debt collector prove every part of its case – not only that you owe the money, but that you owe it to them. And exactly how much you supposedly owe. That’s because old debts get sold – often more than once – and if you don’t make the debt collector prove it owns the debt, you may pay the wrong person. And then you might have to pay again if you get sued by the person that actually owns the debt.

In addition, most people who get sued for debts do not owe what the debt collectors are trying to collect. They routinely add fees and interest they should not, and consumer protections agencies and organizations routinely estimate that almost all debt collection suits include extra charges – and many of them are for far more than is owed.

“Double-Banging”

Because of the extremely lax regulation of debt collectors, and the frequent erosion of those regulations that do exist, debt collectors develop many dirty tricks. One of the dirtiest is known as “double-banging.” This is the repeated collection of the same debt by the same debt collector. You may wonder how such a thing is possible, and it would be difficult, no doubt, if these double-bangers didn’t have a couple of things going for them.

One thing that makes double-banging easier is “spoofing.” That’s a technology that allows debt collectors to cause your phone to think the phone call is coming from another number, usually a local exchange. Thus, while your phone tells you the call is from your own telephone area code, it’s actually originating far away. And of course the debt collectors often change their names – not just the people calling, but the companies they’re supposedly representing. So you are receiving a call from a company that already collected from you, and now it is collecting the same debt again under another name. And they don’t necessarily wait till you have paid the debt off the first time, either. In one known case, a debt collector collected the same debt TEN times.

And that was without even suing the victim. They can do that, too.

Ultimately, what makes all this possible is that people let it happen. That is, they get scared, or feel guilty, or get angry… any number of feelings cause you to relax your guard, and then they get you. Instead of requiring them to provide proof, you’re asking how to pay.

And once they get you, you go on a “sucker list.” That’s just what you probably think it is – a list of people who will fall for various scams. Debt collectors sometimes trade these sucker lists to each other, so after one of them has collected as much as possible, they trade your name to another who will do the same thing.

The Good News

The good news about debt collectors is that they usually CANNOT prove their cases if you make put them to the test. The whole process by which they get these debts is so sloppy and careless that they usually cannot find or obtain the proof that they need to win their case. IF you defend yourself.

Protect Your Rights

Our mission is to protect people from the debt collection process. If you are being sued by debt collectors, or if you are being harassed for money, you need to take action to defend what’s yours. For much more information on defending yourself, go to Fast Track to Debt Defense.