Myths that Can Really Hurt People in Debt


There are a lot of "unfortunate" or downright crazy ideas out there in the internet world. Too many, actually, for us to keep up with in terms of warning you specifically about each one. We would urge you to use your common sense in evaluating the things people say. Remember that the law is a practical system developed over hundreds of years to deal with practical problems. Remember, too, that the legal system is a sort of battlefield between the rich and the "masses" - to put it in currently political terms, between the 1% and the 99% - and that the 99% don't win that many of the battles. That means you should be extremely skeptical of "shocking" or "secret" ways to beat the debt collectors (who are of the 1%). 

You have tools at your disposal - they're the basic tools of litigation. You have a very good chance to win if you will use those tools because of the way the system is designed and used. It's designed to cause people to default and to profit quickly and easily from those who do and, by and large, to get rid of suits against people who do not default. That should make you doubly and triply suspicious of any system, by anybody, that might lead to your defaulting. Anything that makes you default plays right into the hands of the debt collectors.

With all that said, here are a few of the wilder ideas that I have seen lately:

"Strawman" Theory


"Sovereign Man" Theory


Rejecting Service of Process on any Basis


Other Dangerous Myths in Debt Defense and Negotiation

Because any negotiation is about persuasion, and persuasion can result from a mixture of things from threats, inducements, or simply friendliness, debt negotiation either before or during (or even after) litigation will include various arguments regarding legal rights as well as other things.

But not all arguments are equal.

For the most part, you want to make arguments that are reasonable. That isn’t to say that there aren’t times when sheer energy or aggressiveness (as discussed above in the section on personalities) will win – like playing a game of “chicken,” in which it’s just a question of which person is willing to be more reckless, but in general, business between creditors and debtors is not done that way. That is because, beyond a certain point, legal rights will control things, and in commercial law those legal rights are usually pretty clear.

In general, any actual belief (as opposed, for example, to a stated position taken purely for negotiation purposes) that there is some special or secret way “out” of debt that does not take into account economic and practical reality is a dangerous myth for people in debt. Our economic and legal systems were not created by geeks. They have developed over the past 800 years by people working for a living – or living off of the work of others – and a bunch of lawyers resolving literally millions of conflicts. Does it seem remotely likely, therefore, that something impractical and mystical will give you a magical “loophole” out of all your troubles? Not on your life.

With that in mind, let’s discuss a few of the loopy ideas that seem to have gotten some respect out there.

1. You Must Have a Contract with the Collector in Order to Have Debt

There are many people out there on the internet saying that there must be a “contract” in order for there to be a debt. In the first place, this is simply not a true statement of the law, as anybody with a speeding ticket can say. A contract is not necessary for a debt to exist.

In the second place, contracts can arise in many ways, not all of which involve documents signed by both parties, which is what the people talking about the “requirement” of a contract actually mean. A typical law school example of contract is a challenge: “if you lose 50 pounds, I’ll pay you $1,000” or some variation on this “if you do X then I will do Y” idea. Most of the time, these things do create a contract when either side does what the agreement calls for. (These are called “unilateral contracts.”)

What must happen for there to be a contract is for there to be an offer and an acceptance. Where both sides give up something or do something for one another (or say they will), and even something like losing weight or walking across a bridge in exchange for money or something else can satisfy that requirement, and the “contract” will be implied in the law. Using a credit card after receiving an offer certainly creates an obligation to repay – remember, the law was not created by nerds: it was created by business people to make business work. You may hear the phrase “meeting of the minds,” as a necessity for a contract, but this is not a literal necessity; it’s a question of reasonable interpretation.

And in the third place, contracts can be “transferred” or “assigned.” That simply means that, in general, the obligation to pay somebody can be sold or given away, and the person receiving it can collect on it. In reality, this sort of movement of debt obligations is largely responsible for our country’s prosperity (or addiction to consumerism, if you look at it that way), since this allows for the freer flow of money and goods to people who can use them. In any event, it is a fundamental part of our economic system. Do you seriously believe it could be toppled as easily as denying that money can be owed without an agreement between the suer and the sued? If you think so and act or negotiate based upon that belief, you will soon have a judgment to worry about in addition to everything else. Be realistic.

2. Debt is not Debt because Money is not Money

There has long been a theory that because the constitution said that money was to be gold or silver, and the Federal Reserve creates money out of a banking process that relies on debt to bring what we call money into existence, that debt is somehow not debt. This argument is made in many different ways. Some argue that because Federal Reserve Notes are created out of debt, they are somehow “paid off” as soon as you buy something. Others say that there is simply no such a thing as money any more, and therefore nobody owes anybody anything. We have also heard some weird argument about Social Security numbers creating automatic bank accounts, although how this would relate to a credit card debt isn't clear.

However the argument is made (and we have some sympathy for the argument that the founders intended to and did put a gold and silver as money requirement into the constitution), it’s a pipe dream now. The Supreme Court has “read” the gold and silver requirement out of the constitution, and in any event the actual existence of debt does not require the existence of money. This whole argument about not owing anything for valuable things you have received is a fantasy. We believe that if you even state it as a position to your counterparty or the court, you will damage your credibility and seen as a flake.

3. There Must be a “Conflict” for the Court to Obtain Jurisdiction

Again, this is simply not so, as the argument is made.

The inventors of this idea seem to have taken it from the constitutional requirement that there be a “controversy” for a court to have jurisdiction. But the fact that a debt collector wants money that you do not pay (it doesn’t matter whether you “want” to or “refuse” to pay or not) is plenty enough controversy to establish that aspect of jurisdiction. Do you seriously think this hasn’t been addressed in 800 years of law? That it waited until the invention of Youtube for someone to figure this out? No.

This is another idea that will hurt you in the eyes of the counterparty. And to be specific, not only will the other person discount your words, but it is likely that he or she will believe you are weaker as an opponent. This means that taking this position makes litigation more likely, and you will lose that litigation if you take this position in the lawsuit.

4. You Must “Consent” to the Court’s Jurisdiction

One of the dumbest ideas I’ve heard recently is that you must somehow consent to the court’s jurisdiction over you in order for it to have power over you. Again, this is simply not so, as any captured bank robber could tell you. Jurisdiction does not depend on the agreement of the people trying to avoid their debts. One of the darling notions of democracy may be that people who are governed must “consent” to be governed, but this is hardly true in any literal way at all. In fact, jurisdiction depends on the power of the governing body. If you try not to pay debts and to keep the police from taking stuff when a court says they can, you will be put in jail. Consent to jurisdiction is implied by your having certain minimum contacts with it, and it is certainly not a matter to which you could revoke or deny that consent if sued.

Everybody actually knows this, it’s just that people create elaborate fantasies that they dress up and sell to people (sometimes themselves) who are desperate to avoid problems. If you are talking about or considering negotiating your debts, this is not you – you are attempting to solve, rather than avoid, your problems.

It is equally true that “refusing” the “benefits or burdens of the court’s jurisdiction,” whether you write it at a 45 degree angle or not (!) simply has no effect in the law other than to distract you and make it less likely that you will defend yourself. Don’t try to use any of these hare-brained schemes as negotiating points, as they will simply mark you as a loser in the eyes of your counterparty. Complete silence would probably be far better.

Start from Reality

If you are facing debt problems, pretending that there is some magical solution to them, some way to wave a wand or recite a few words and have the debts go away, is just dangerous thinking. If you follow any of the paths listed above, you will probably ignore the things that actually work and get yourself into a truly terrible place very quickly. Be realistic and practical. Don’t believe people who try to sell you moonshine. And above all, don’t try to sell this nonsense to the people trying to get money from you when you are negotiating. You will lose their respect if you do, and this will negatively affect your ability to make a deal.

You will find a lot of materials throughout this site that will help you develop a true and accurate understanding of your situation. You have some real advantages in your situation, whether you are negotiating or in a lawsuit. They want your money, and they have to follow some pretty tough rules if you make them. Our articles, videos and products are designed to help you do that. It doesn't always sound easy - and it isn't always easy - but it works if you will put in the work.

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