You Can’t Borrow Your Way Out of a Debt Problem

I say this all the time, you cannot borrow your way 

Borrow More or Bankruptcy?
Borrow More or Bankruptcy?

out of a debt problem.  Borrowing from Peter to

pay Paul is a way a lot of my clients describe credit

card pyramids, that is, using cash advances from the

new credit card to make minimum payments on the

old credit cards

Some Borrowing is Worse Than Others

Starting at the bottom, short of Tony Soprano, PayDay lending, of any kind.

Prosecutors said that from 2004 to September 2014, Moseley’s businesses made “predatory” loans to more than 620,000 Americans, often downplaying the financing costs and charging effective annual interest rates that could top 700 percent.

Yeah, 700% is a little bit high.

A federal jury in Manhattan on Wednesday found a Kansas City, Mo., businessman guilty of fraud for running a $220 million payday lending scheme that charged illegally high interest rates and made loans to consumers who did not authorize them.

Debt Relief Scams

Marketed as “Don’t File Bankruptcy!” with deceptive radio ads about “The Secret the Credit Card Companies Don’t Want You To Know!” or new federal program, you don’t have to pay them back.

All BS.

These con artists open up one scam until they get nailed, and then surface somewhere else.

I think a lot of them used to be mortgage brokers.

The Consumer Financial Protection Bureau (CFPB) today filed a lawsuit against Freedom Debt Relief, the nation’s largest debt-settlement services provider, and its co-CEO Andrew Housser for deceiving consumers. The CFPB alleges that Freedom charges consumers without settling their debts as promised, makes customers negotiate their own settlements, misleads them about its fees and the reach of its services, and fails to inform them of their rights to funds they deposited with the company.

There are many, many other companies pulling the same scam.

Freedom claims that it has successfully negotiated and settled more than $7 billion in debts for more than 300,000 consumers. Through telemarketing contacts with prospective customers, Freedom learns who their creditors are, the amounts owed to each, and the nature of the debts. Freedom requires customers enrolled in its debt-settlement program to deposit money into dedicated accounts with an FDIC-insured bank. Freedom tells consumers that when the accounts have sufficient funds to make settlement offers, Freedom will negotiate with consumers’ creditors to persuade them to accept less than the actual amounts owed. When a debt is settled, Freedom charges consumers fees that range between 18 percent and 25 percent of the amount of debt the consumer owed on the day they signed up for the program.

Just one of the alleged violations:

Deceives consumers about its fees: Freedom falsely claims that it charges consumers only when it negotiates a settlement of a debt and consumers make a payment under the terms of the settlement. In fact, Freedom charges consumers its full fee even when creditors simply stop collection efforts in the absence of a negotiated settlement and consumer payment and when it takes no action on a consumer’s account.

These crooks cannot do anything you cannot do for yourself.  Then have no leverage that you do not have.

AND, any forgiven debt is taxable income to you.

So, if you settle your 10,000 debt for 2,000, you get a 1099C for 8,000 of debt forgiveness income, on which you are liable for income tax.

Contact an expert bankruptcy attorney before you try these things.

You Can't Borrow Your Way Out of a Debt Problem
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You Can't Borrow Your Way Out of a Debt Problem
Borrowing more when you cannot pay your bills, or using debt settlement companies, instead of filing bankruptcy. Does this make sense?
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