There is a tendency among being drowning in debt to wish for a magic bullet or some other sudden, easy remedy. Or otherwise to take no action and hope the debt goes away. This path could lead to financial destruction.I am now not paying credit cards as I am swamped with debt, and the minimum payments are killing me. I have been told the banks only gave me debt, not money, and are guilty of conversion by selling my personal information. I have been told the banks are committing fraud, coercion, unjust enrichment and violation of FCRA section 619. Do I owe anybody any money?

Magical Thinking Does Not Solve Debt

I get variations on this type of question fairly frequently. Someone has told the person contacting me that either there is no debt because the person only applied for a credit card but did not sign a contract, or, more esoterically, that there is no longer any money in the U.S. and thus there can be no debt. That argument has its academic basis in the fact that the United States left the gold standard and has allowed the Federal Reserve to issue “currency” in the form of “Federal Reserve Notes.” But it has its true basis in wishful or magical thinking. It would be so nice to wave a wand or speak some powerful words that would make the debt collectors go away.

Fighting is the only way to make them go away.

Contractual Agreement?

To handle the more basic objection first, it is true that a contract is an “agreement” between two parties, but it is not true that the agreement must be signed by both parties. An agreement can be inferred where the parties act as if there is an agreement. For example, if I offer to pay you $100 to walk on your hands across the street, and you do so, then your action has consummated a “unilateral” contract, and I am legally bound to pay you the $100. Likewise, if you apply for a credit card and I accept your application and issue a card to you, and then you use it to make a purchase, your use of the card establishes an obligation to pay back the debt under the contractual terms stated in the application. As far as I know, no modern court has ever held otherwise. Of course, a debt collector might have a difficult time finding the application and proving the terms of the debt-in my opinion a more fruitful line of attack.

Debt collectors often do things which are legally wrong, but these are either defenses or counterclaims you can make against them. Or you can bring suit yourself. The key to remember, though, is that the law is almost never self-enforcing. The mere existence of defenses or claims does not do anything for you-you must assert and prove them in order for them to do you any good.

Gold Is Money

What about the constitutional directive that all money be gold and silver, does this get you off the hook for credit card debt? The argument goes that only “debt” (which Federal Reserve notes signify) has been transferred, rather than money. But the gold and silver provision of the constitution was “written out” of the law by the Supreme Court long ago. That decision was not, in my opinion, a great moment for the Court or the American people, but it has never been revisited. It probably won’t be revisited, either, at least until the U.S. currency is nearing or at the point of collapse. Then Federal Reserve currency won’t seem so central to American commercial life, and a far-seeing Court might, under radical conditions, take a new look at the question.

But even then I suspect that the argument that no money was paid will not fly, and that is because Federal Reserve notes do have at least some “value.” If I offer to pay you 100 clam shells in exchange for something from you, a contract is formed. If I breach it, I would owe you the “value” of the 100 clam shells, normally, or under certain circumstances the shells themselves. Although Federal Reserve notes certainly do not have the value they once had in the market, this has only been to the advantage of people who owe money rather than others. Ironically, about the time anybody would revisit the question of whether federal reserve notes can be used as “money,” they will be approaching worthlessness. Then the biggest disaster a debtor could face would be to have to pay back in something of more enduring value.

Federal Reserve Notes Have Value

A Federal Reserve note is basically an “IOU” by the Federal Reserve, a private institution. The Fed gives currency (these days mostly electronically) to the banks in return for some sort of assets or a promise to pay it back, and that is the way money is created. The banks then lend out the money and it “circulates.” In contract law, debt is normally freely transferable. So not only can federal reserve notes be used as currency, but other forms of “commercial paper” or even private IOUs can also be used to buy things. They aren’t money and won’t necessarily be honored at “face value,” but they can certainly be used to pay debts. This would establish a contract even if it left the value of the obligation uncertain.

No Silver Bullets to Debt

And that leads to the central problem with the various “silver bullet” arguments which try to kill a person’s debt based on technicalities. The judicial system is far more practical than many suppose, and it would not ultimately (after the appeals process-individual judges sometimes do almost anything) make a ruling that would destroy the American commercial system. And this is appropriate in a democracy, since the courts should interpret laws rather than make them. A commercial system which has grown up over many, many years by responding to practical needs and which every legislative action has either taken for granted or actually bolstered, should not be stricken down in an instant by a court opinion.

What to Do

Fortunately, a person being harassed by debt collectors need not hope for such a silver bullet. Most debt collectors have a lot of trouble trying to prove the debts they are trying to collect for much more practical reasons. Often the records no longer exist or cannot be legally introduced as evidence. If you fight back, you can either prove they cannot make their case, or take the fun and profit out of it for them so they drop the case and leave you alone. Tackling just the monster attacking you is probably going to be enough for most people. Watch out for people trying to sell you more.