Should you pay? Moral Obligation renamed

This post is long. Please read it in full and give it whatever consideration you think it deserves.

In addition to my juris doctorate, I have a degree in Management & Ethics. I have read and written on many ethics topics. Originally I wanted to wait for a while before commenting on this issue... maybe until after my book is published. However I feel I must comment and invite comment on a topic that often arises in the context of debt, debt settlement, and collections.... Moral Obligation.

First: Moral Obligation of debt collectors/collection agencies

They have a Moral Obligation to follow the law. That means the law of the fdcpa (federal) and your state laws. I don't think they can justify breaking the law to achieve the ends of collecting money from a debtor. A debtor breaks no law when he/she cannot repay a debt. A collection agency breaks the law when they violate any part of the FDCPA or your state law. A debtor does not break the law when they hang up the phone. A collection agency breaks the law when they repeatedly call a debtor or someone who is not the debtor. A debtor does not break the law when he/she requests validation of a debt according to their legal rights. A collection agency violates the law when they fail to validate the debt after the request is made. My point is this: I think collection agencies and their employees have a moral obligation to follow the laws in place to limit/direct their conduct. There are no exceptions. Period............

Moral Obligation of Debtors (people who owe money):

I think their are different levels of obligations. This is not a cop out. What I mean is this. You havev a higher moral obligation to feed yourself and your children than to give that money to a collection agency or even original creditor. You have a higher moral obligation to make sure the rent/mortgage is paid than to pay for your gym membership or a credit card. You have a moral obligation to keep the lights on and water running before you pay a credit card, the gym membership or pay for that second car you cannot afford. Notice I did not say the first car. I think your moral obligation is to provide food, clothing, shelter, and transportation for you and your family before you pay any other debt. If you do not, you will be neglecting the basic necessities of life. How can one even think about paying a nonessential debt when the necessities for living are going unmet.

Moral Obligations of debtors after the statute of limitations has run:

No legal claim against you can survive if you plead the SOL as your defense, but you still owe the debt. You are still obligated, but the creditor/CA does not have a legal claim against you unless you rollover and let them sue you without answering. Do you have a moral obligation to pay? Can you pay without sacrificing the necessities of life? What about the payday loan company or credit card company that has already collected their money from you many times over in the form of interest and fees yet you still have a large balance due. Are you obligated to pay the debt many times over because they will not work with you given your current situation?

I want your responses. Here is what I think. Lenders make it easy for you to obtain credit, but you pay for it with interest. They set interest rates based on the amount of debt they anticipate they will never recover from debtors. They know a certain percentage will default. They cover their losses by charging higher interest rates. Just look at payday loans. They charge a high interest rate ( I've seem some as high as 800%) because they know a large number will default. In the end, they stay in business and make money because they charge such high interest rates, late fees, penalties, and over limit fees. No one forces them to operate this kind of business. Do you have a moral obligation to repay a debt after the SOL has run when the creditor has already recouped their losses through the interest rates they set?

How about this: Do you have a Moral Obligation to repay your debt to a debt collector. You should know, the older your debt, the less the collection agency pays to own the account. I have seen debts older than the SOL get bought for pennies for each hundred dollars in debt. The debt collector makes a profit when you pay them a dollar in these situations. Do you have a Moral Obligation to pay them in full so that they make 10,000% profit on your account?

I wan't to know what this community really thinks about this topic of Moral Obligation. It is deap. It is real. It comes up often. What do you think? (debt collectors need not post, I already know what you think. Your bosses tell me when they send me settlement checks for thousands of dollars because you think you can break every law in the book. Debt collectors should be reading the laws of their profession instead of reading this post.)

I appreciate your way of thinking

Morally I should always pay back the debts that I owe. However, I will be thinking twice while paying to collection agencies and in my opinion, there is simply no reason to pay for a charged-off debt. Creditors show the charged-off debts as bad debt in their balance sheet and they get some discount on business tax for that I guess. Then why should I pay to a debt buyer for the same debt? Don’t you think it is illegal to sell charged-off debts?

Texas, I recognize the thinking and appreciate it as well. I'm a paralegal, so ethics and moral obligations are always in the back of my mind. Is there a moral obligation? In my opinion, yes. But, as you pointed out, necessities take precedence. The need to keep moving in a forward direction despite the psychological weight of doing what is morally right with respect to debt issues is tough and over a long period of time, it wears you down. The only way I could counter that was to educate myself. Regretfully, something I should have done years ago since I am now reaping the reward of taking credit and money management for granted. The interesting aspect of the education is that it helps relieve the psychological burden because you're able to discern your situation and determine exactly what criteria fits into the area of moral obligation. An example, I took out an internet payday loan for $300. I had a good record with the company before and I expected to be able to do the same again. Something unexpected came up and my priorities shifted. I had no ability to pay the debt for several months. During that time I felt like I has stolen and that I had lost my self esteem. I didn't even contact the company and all the time they kept hitting my account time and time again until finally the bank closed it. I found myself in a downward spiral, psychologically, emotionally and financially. Yet, instead of taking charge of that situation, I focused on the basics ... food, utilities, transportation, etc. because I knew that if I didn't focus on those things, I would NEVER be able to pay the debt. By the time things slowed down and I started looking into paying them back, I found that they wanted over $2,000. So, my sense of moral obligation changed again. This time I decided it was immoral for anyone to try to take advantage of me. I had paid the company the principal and more than enough to cover interest in accordance with the laws of my state. In fact, this company owed me money. I no longer felt a moral obligation to this company and wrote them to advise that I had discovered they weren't legally registered in my state and requested a PIF letter. I got it and thus, my sense of moral obligation to that company was satisfied.

Taxes: Excluding a settlement, the debt should not go away. Everyone uses tax dollars, for example the mone that pays for the protection of consumers from abusive debt collectors.

Judgments resulting from personal injury/property damage: Debt should only be erased on payment in full (or an acceptable settlement with the person to whom it is owed). Example: The medical bills that Cassie's family (http://www.debtconsolidationcare.com...bout22385.html)will surely have to pay for her care, and will have just as surely have sue in order to recoup.

Traffic fines: Should always be paid in full. If you can't afford to pay a ticket (either by time or money) esp. for no insurance or DUI, you cannot pay for injuries/damage you may cause someone else.

Child support: Your egg or sperm, your responsibility. Sadly, too many people don't get this one.

Interest payments: The interest that results from a debt is a moral obligation, as well. A business service was provided, and its price is interest. See below.

Predatory lending: Interesting issue. The morality of paying an immoral debt? The morality of an issue is not determined by its legality. Therefore, a legal debt is not always a moral debt. Quantifying the moral point in time at which this type of debt should be considered PIF is something I do not feel qualified to do.

Unfortunately, many of our laws (or lack thereof) are a result of too much political influence. Money was borrowed, and there is a moral obligation to repay it. However, morally bankrupt tactics such as crippling interest rates and universal default clauses should be banned outright, as they lead to finacially bankrupt individuals. The government should take a proactive, not reactive approach to illegal schemes like the IPDL's, and ban wage garnishment clauses as well.

Consumer credit: Money was borrowed, therefore there is a moral obligation to repay, regardless of the SOL. I am in total agreement with Stanley. If a debt was logged as a loss (and a corresponding tax write off), the debt should be nullified, and reported as such on a credit report, and the sale of said debt, outlawed.

A word is on the tip of my tounge, defined as the set depreciation rate of an asset over time. Perhaps using this [missing word] as a basis of defining repayment schedules/charge offs on extremely delinquent debts could lead to higher repayment to original creditors (while simultaneously, 3rd party collections on consumer debts would be eliminated). Talk about a pipe dream.

Financial priorities: My wife and child will always have food, shelter and clothing. They are the top priority, and always will be. I would be derelict as a husband and father were it any other way.

Ditto. And once I've turned around, I'm never going to get into this sitch again.

To DebtFairy-I'm glad you were able to turn that sitch around. I hope you got the refund you were due.

Now a hypothetical, related question:
I ended up with a $5000 loan from beneficial, paying over 25% interest. I recently noticed that a portion of my payment goes to insurance. If a debt were insured, would that change the moral obligation to repay?

I really enjoyed your post. And I agree with your moral obligation. I feel that I have a moral obligation to pay all necessecities, and if a creditor doesn't want to work with me, then I do not have a moral obligation because it would interfere with my priorities of taking care of my family's needs first.

Stanley,

You bring up an interesting point about charged off debt. I have three credit card accounts that were charged off while I was in a debt settlement program. I have since ended that program because they were not doing their jobs. I paid their excessive fees up front and they blamed me for not being able to do their jobs. That situation has since been remedied but now I am dealing with the aftermath of their mistakes. I have been contacted by three different collection agencies on these accounts. All three threatened to sue me if I didn't give them my banking information on the spot. I knew better than that and sent my dv letters to each agency. Not one has validated my debt and I am in the process of sending follow up letters. One CA I have at least six violations of the fdcpa. They are well known for their illegal tactics. I have been sending payments to the original creditors and they have cashed those payments. I do feel a moral obligation to pay what I charged on these accounts but what about the hundreds of dollars they've added on for late charges, interest, etc? Two have nearly doubled in the amounts that I actually owe them. How should I approach this type of situation?

Mishele, I'm curious. You say you dropped your program because they weren't doing their job. Weren't you with Superior Debt? I'm just asking because that's who I'm with, and so far they don't seem to have done a damn thing except take our money. We have been turned over to debt lawyers and whenever we tell them it's always the same thing-- ignore all calls and keep up what we are doing now.

Any advice?

sorry for the double post. Sticky mouse key made it post twice!

A very thought provoking post, one that I've pondered many times. Most of my debt occurred while being in business for myself. I'm single and had only one other source of income, my disability payment from the Veterans Administration. I called my creditors and informed them that my business was in trouble and my income was very limited. I offered to pay the interest on the loans I had and not one of them accepted my offer.

Several years have passed and I'm in the process of making restitutions. I often think that part of the reason I'm in this situation is the refusal of my creditors to accept a partial payment. Many turned the accounts over for collection and the total amounts of the monthly payments I make are less than the original monthly payments. Not to mention, the CA is keeping a percentage so the original creditor is receiving much less than they could have received. I never understood their logic, or lack thereof. Why wouldn't a creditor accept a payment even if it were much less than the agreed upon amount?

I take solace in the fact that I'm repaying my debts and eliminating the guilt I felt for getting into this situation to begin with. However, I still believe most if not all of this could have been avoided. I've learned that creditors aren't necessarily the brightest stars in the sky. I didn't file bankruptcy when I could have, and I haven't ignored the responsibility I have in repaying my debts. What does all of this mean? It means that most of us have a higher moral character than those creditors, attorneys, and CA's that attempt to make us think otherwise while collecting a debt. I have no problem with the person I see in the mirror, well, at least not from a moral standpoint. I wish I were handsome enough to get Jennifer Aniston to marry me. That's another subject for another board.

I believe I've addressed your question of moral obligation and the only plausible explanation I can derive is this: I'll repay my debts and in the process, everybody can kiss my royal, olive skinned Italiano ass.

Well let me chime in with my vote!
I have learned thru various methods and research that banks and finance ins. expect a certain percent not to pay. My hometown bank has never given me any flak when either my wife or me had any issues with accounts. Now granted this is what you would classify as a hometown bank. Personally I feel if they are unwilling to work something out with their customers then why should I feel any obligation to pay them back after they have charged off my credit and in process ruined my credit for 7 years and made a DAM* profit in the process.

In my opinion you should look at finances as a business decision instead of being bound with morals that they no longer possess.Just my $.02.

minicrazy,

How long you have been in the program?

Almost 10 months.

I tend to lean the way of cajunbulldog. The lenders look at the rest of us as a business decision. Why not look at them the same way?

For those who base their moral values on God/the Bible, please think about this. Deuteronomy 15:1 says: "At the end of every seven years you must cancel debts." Read the context so you don't think I am just taking the part that fits my purpose.

Do you think God requires us to repay every debt no matter how long it takes? I would suggest that God knew that debt could create a lifetime of slavery and therefore required debt forgiveness EVERY 7 years.

Certainly this is not a business model we see today, but if we base our "moral obligation" on our core spiritual values and beliefs we should read and understand the source of those values and beliefs. (at least in the Christian sense in this example)

If this paints the lenders in an evil light, then so be it. I am not saying what is right or wrong, just offering my perspective on a situation where one party views it objectively as a business decision of dollars and cents and then tries to GUILT the other person into paying.

Don't get me wrong, if you have the money, then pay off your debts and be free. But if the practices of the credit industry, unemployment, or illness put you in a position of hopelessness, repaying an unsecured debt should be the last worry you have.

mini,

I was with them for eleven months. It turned ugly at the end but I don't want to go into all of the details. I would check with your debt counselor to see what the status of your accounts are. I don't know your situation, how much you have in your escrow account, and what the total of your debts are. I just did what was best for me at the time. Texaslawyer, you bring up a very valid post in your last post. I had one debt for less that five hundred dollars turned over to a CA in November. Of course I was getting the threats of being sued because I would not give him my banking information. I am finding this to be a common tactic. I sent the DV letter, no response. I called them and they told me they were sending the DV letter. Nothing and nothing to the follow up letter that I sent. Now, I received a letter in the mail yesterday from the original creditor. It stated it had been turned over to a different CA with just a name and phone number. This gets old because it's like starting all over again. They also included some print screens of my account which I guess is their way of validating the debt. It states in the letter that I have to call the CA to make payment arrangements with them. So I have to find their address to send another DV letter to start the process over because the dollar amount does not match anything that I have. I had written a letter to the original creditor to try and settle the account with them but I guess this is their response. It does get old so I can understand your point.

Trying to collect an amount not due is another violation of the law, just like failure to validate. You should save those letters with incorrect amounts as evidence in case you get a lawyer.

I do have a lawyer who I'm meeting with today. I will show him these newer papers as well. I think anyone can do a print screen to attempt validation of a debt.