Pearls of Wisdom: What Do You Do When You Have A Debt You Don’t Want To Pay?

pearls-of-wisdom-what-do-you-do-when-you-have-a-debt-you-dont-want-to-pay

What do you do when you have a debt you don’t want to pay?

Let’s say that your son or daughter buys a new home but does not have the credit to secure the mortgage on their own and you (as the loving parent that you are) sign as the guarantor for the monthly mortgage payments. Then let’s say that for whatever reason, your child can no longer make the payments. You try to talk with the friendly staffers at the bank to negotiate a deal for your child, but they just remind you that you are obligated to make the payments should your child fail to do so. They also kindly point out that they will sue you under the Trust Indenture Act (the document you and your son or daughter signed can be called an “indenture”) if you fail to make the payments.

The top possible solutions that come to my mind are:

  • Give your child money to make the payments until they can do so on their own

  • Make the payments yourself until they can do so on their own

  • Have them sell the house quickly and use the money to pay off the mortgage

  • Don’t make the payments and wait for the bank to sue you

Though these are the immediate solutions that come to mind but Forbes and the Washington Post have pointed out another possibility. This comes in the form of a proposed amendments to modify the Trust Indenture Act by various U.S. Senators:

Simply let your kid take all of the blame and you get off scot-free.

Plot-twist: these amendments wouldn’t apply to people like you and me or actual children. It instead would apply solely to parent corporations and their subsidiary companies.

The scenario we’re actually talking about is Caesars Entertainment Operating Company, some of whose debts had been guaranteed by its parent company (Caesars Entertainment Corp).

Just donate a few tens of thousands of dollars to a Senator and then when he reaches out to extend his thanks, explain to him the grave injustice to which the bank is subjecting you to, and explain how it could all be made right by just adding one harmless little non-controversial paragraph to the Trust Indenture Act. Just one little paragraph at the end of section 316(b) specifying that a change to the terms of a loan that require approval means the principal amount, the interest rate, or the maturity date (not other factors, like whether or not the loan is guaranteed). It could be done without hearings and as a last minute amendment to the Highway Funding act that has already passed and is already in a conference committee. No one would notice, so no one would complain. Why didn’t I think of that solution?

Fortunately, someone did notice so that change has not, as of now, become law.

But the point is this: At the end of the day, we should not be relieved or rejoice that such a radical and ridiculous rule was blocked at the last minute. One which would have amounted to a huge gift to a major corporation (and the private equity people who control it) from their lenders which are mostly other investment funds. Rather, we should be furious that our legislators can be so easily purchased and coerced into making changes to obscure regulations that would move hundreds of millions of dollars from some investment funds to others when we have a plethora of pressing issues that need to be addressed. It is by no coincidence that these same politicians who understand totally the obscure legal issues of  their major campaign donors, now sit by idly while the pressing issues that affect everyday middle-class, PACless Americans.

 

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Full Transparency: Morris has been researching these companies as part of his own personal investment portfolio

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