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Bad Debt Shouldn’t Stop An Entrepreneur’s Comeback

Bad Debt Shouldn’t Stop An Entrepreneur’s Comeback

Mark Hankins

A short authors bio:

Mark S. Hankins (1962- ) was born in Tampa, Florida, a fourth-generation Floridian, graduated from the University of Virginia and the University of Florida School of Law, lived and practiced law in Gainesville, FL, Tallahassee, Denver (where he earned an LLM in Taxation) and Miami, and returned to the Tampa Bay Area in 2002 where he operates Florida Incorporators, Inc. an online incorporation service. Having worked as a collections attorney for the Florida Department of Transportation inTallahassee, he began researching debt collection from the consumer perspective in 2003 and intensified his research with the objective of writing a book starting in 2008 as he became aware that theU.S.faced an unprecedented financial crisis.

A book synopsis:

“Debt Hope: Down and Dirty Survival Strategies,” is designed to fill a void in the financial self-help literature by providing in-depth and up-to-date information on topics that other books only touch on in passing. As the number of unemployed and underemployed Americans continues to grow and as banks seek to shore up their balance sheets by rate jacking and fee harvesting, consumers need to know all they can learn about effective countermeasures.

Why did you write this book?

In 2003 or so I began to frequent internet bulletin boards where debtors helped other debtors. I became aware of the amount of misinformation out there, and when I ordered a popular debt book by one of the TV gurus I was shocked at the lack of sophistication and the errors that were in it.

Write a paragraph stating why readers should buy your book and what they will get out of it after reading it.

My book provides detailed maps to the debt collection process all the way through the legal side of it and on through to bankruptcy, complete with footnotes to original sources and more detailed discussions of particular matters that I touch on.

Entrepreneurs are occasionally those happy folks for whom life, to misquote F. Scott Fitzgerald, has been “an unbroken series of successful gestures.” This article is for the other kind of entrepreneur, the kind who has slogged it out in the arena, sometimes been down, even out, but who always craves a comeback. Nobody needs to tell that kind of entrepreneur that the economy has been tough since even before the 2008 collapse of Lehman Brothers, which is generally considered the moment when everything changed for Americans. They felt the bad times like a quarterback feels a linebacker sacking him from the blind side.

One of the consequences of bad times in business is bad debts, even sometimes unpayable bad debts. And because small businesses usually can’t avoid the necessity of having their principals personally guarantee debt (let alone avoid having their principals use their own personal credit cards to finance aspects of the business), the debt that has gone bad is often in the business owners’ names. If that has happened to you, my book Debt Hope: Down and Dirty Survival Strategies offers a look inside the minds of the collections industry as well as showing you the most powerful tools you can use in your battle with them and a roadmap to redemption.

 

Before you can make progress on your situation though, you need to know how their system works and what you can do to survive their game of psychological warfare and beat them in a battle of wits. The other side no longer sees you as a reliable customer, you are now just someone from whom they intend to squeeze the most money possible. To protect your own interests, you are no longer going to make payments except to obtain the maximum relief from your debt. To do that you have to accept reality and discard some old myths.

 

When collectors call you, they want you to buy into several of their convenient myths, without which their jobs become much tougher. The first myth is that if you don’t pay you are the lowest scum of the Earth. In the bubble economy of the ‘90s perhaps there might have been some truth to that. For example in the year 2000, only one in fourteen Americans was in collections. Today that figure is one in seven. You are far from alone, so while you may not shout from the rooftops “I’m a deadbeat!” you shouldn’t carry around any more guilt and shame than is absolutely necessary. The second myth is that they are entirely legitimate representatives of an unassailable authority and you must cooperate fully with whatever they propose. In fact the caller probably has little power or authority. Most likely you are talking to a low-paid call center worker, perhaps in a foreign country such as India or Costa Rica although Buffalo, New York is also a well-known Mecca for collections agencies. Even if you are uncooperative and that person puts a “supervisor” on the line, you probably still aren’t dealing with anyone who can handle your call on an individualized basis. They can only offer you a few pre-authorized settlement options presented on their screens in a check-the-box format. They are also after what for them is the Holy Grail: your checking account number. Never give them that. Collectors are well known for taking more than they should, earlier than they should and more often than they should. Your best choice is to keep control of your checking account information in your own hands.

 

Another myth is that your payment will somehow make the credit card company or bank whole. In most cases of longstanding bad debt, that is no longer true. The debt has long ago been sold to a junk debt buyer, a member of a multi-billion dollar industry that spends a nickel on the dollar to buy wholesale lots of defaulted debt the creditors have already written off. Your payment of one hundred cents on the dollar to a company like that would represent a 950% gross profit. Because the law allows contract rights to be sold they technically have a right to try to go get that in court, but all companies like that are well aware that many of their claims are against people who cannot pay. They have no expectations of a one hundred cent on the dollar recovery and you should feel no obligation to give it to them. Anything you pay is just feeding a vulture. So now that you have resolved not to give up your checking account information, what else should you not do on the phone?

 

In addition to angling for your banking information, collectors are also trained to ask you during the call whether you’re working or not. If you tell them you won’t share that information you negate their ability to go beyond that and gather information such as where you’re working and how much you’re making, all of which are key data points they crave in order to figure out whether you are a viable candidate for heavier harassment or even legal action. Keeping them off balance in this way allows you to deal with them on your own terms or even not at all. It won’t be easy to deny them the information. They’re trained to ask why you won’t answer those questions and to try to overcome whatever objection you give them as a reason. Sometimes this can go on for a half hour. Unless you are able to and really want to settle the debt during that call, your goal should be for the frustrated collector to terminate the call with you. Hanging up on them only invites them to call back, sooner rather than later.

 

If a collector is truly crossing the line with frequent harassment, you may have the option to sue under the Fair Debt Collection Practices Act, a federal statute that allows for you to collect up to $1,000 in statutory damages, as well as any actual damages and your attorneys fees. Reasons for suing under the FDCPA include calls made after 9PM at night or before 8AM, repeated calls during the same day, calls made to relatives or neighbors for purposes other than ascertaining your whereabouts, implying that your nonpayment is criminal or that they are law enforcement officials and lastly, use of abusive language. Because the FDCPA is not applicable to business debts, if you are being harassed for a debt that is strictly related to your current or former business you must depend on state statutes or the common law if you are taking a collector to court, and you will typically not be able to choose to file in federal court rather than state court as you would be under the FDCPA. In some states the state laws restricting collectors are even stronger than the FDCPA.

If you are able to offer something in the way of settlement, you will often already have in hand a letter from the collections agency that identifies one or more options. Typically the bottom-dollar offer will be a lump-sum of half the amount they say you owe. Do not take that as a hard-and-fast bottom line figure. Depending on the creditor, settlements can be had as low as 20% (although during income tax refund season they always think they can get more). If you can’t offer even that much, then you can’t expect to voluntarily settle the matter with an agreement. If you have between ten and twenty percent and your state has favorable case law construing accord and satisfaction checks, you may consider sending such an amount with an appropriately marked check and/or a letter identifying the amount you’re sending as being in full and final settlement. You might later have to defend such a check in court, but you should have a good chance of winning. If you send less than ten percent in that way though the court will probably find one reason or another to tell you that you are out of luck.

Sometimes collectors actually do sue debtors. Typically they’ll go after debtors who have either signed a new promise to pay (in legal terms it’s called a novation, and it’s usually a mistake to do it), or whose case is well-documented. Believe it or not, many credit card cases are poorly documented, and often junk debt buyers are unable to obtain live testimony from a records custodian at the creditor in order to meet the exception to the rules of evidence necessary to overcome the inadmissibility as hearsay of the records they do have. Unless you or your attorney makes the proper objections and the judge is receptive the creditor’s attorney will often steamroller right over flaws like these.

Another Achilles’ heel that has cropped up recently for creditors is arbitration. A few years back arbitration clauses in credit card agreements were feared and loathed by debtors and their attorneys. But in 2009, the Minnesota Attorney General exposed the National Arbitration Forum as a front for junk debt buyers and it agreed to stop serving as a forum for credit card disputes. The American Arbitration Association did the same, leaving only a single nationwide arbitration firm, JAMS, which is well regarded for its neutrality. A demand for arbitration made by a debtor at the outset of the creditor’s litigation will often derail the process entirely, or at least provide a significant delay before it resumes. Creditors’ attorneys are geared up for short, decisive victories, not trench warfare like forcing them from the forum they have chosen into another.

Documentation disputes and arbitration demands are not the only two secret weapons debtors can use. Another key concept that debtors should understand is the statute of limitations. Debt that is too old can still be sued upon, but its age often allows the debtor to claim an affirmative defense that will defeat the creditor’s claim. The number of years varies from state to state but it is typically not more than six years or less than three, although there are some notable exceptions. Depending on how courts in your state view the law, the creditor may or may not be able to take advantage of the difference in statute of limitations between your state and the state where it is located; and if you have changed states at some point while the debt was still outstanding that can also play a role in the legal calculation. For an older debt, understanding and correctly arguing the statute of limitations can mean the difference between paying everything and paying nothing.

 

An article like this can only give you the most rudimentary information about finding your way out of a debt maze. But without a book like Debt Hope: Down and Dirty Survival Strategies you might not even know the right questions to ask an attorney, and you could easily find yourself victimized by your creditors, or even worse you might declare bankruptcy when another solution would have worked better for you and avoided the playing of a valuable card that you could hold back for a moment of more pressing need. A recent study found that hope was more important than intelligence in predicting the success of schoolchildren. The same can be said of dealing with debt problems.

 

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