Bad Debt Rule #1: Get Off Your Moral High Horse

I hear it all the time: “You should pay your debts.” …and… “But you promised!”

And that was just for the “benefit” of my clients. I got far worse. For 20 years, I had a firm that at its height, raked in over $3 million per year in fees assisting thousands of small businesses and consumers settle a combined  average of a million dollars of debt monthly at about 35 cents on the dollar.

Go suck on it.

Believe I enabled deadbeats all you like. …It was cool, see. I had this knack for getting people who won’t pay their debts to pay my fees, and additionally, pay creditors 2-3 times as much to settle. And all when they were paying zero already.

I work miracles.

In one particular memorable case, a startup company that had the tech to make DLP (digital light projection) real and in your living room (which was and is, now) got fucked over by Intel for over a million—as a startup. Yep, Intel decided to dabble with the idea of making high-end computer monitors. Then when they decided otherwise, and this startup was already into it for $1.2 million between them and vendors to develop, with prototypes and all, Intel had two words for them beyond losing interest in the idea and then not paying: “sue us.”

Welcome to hard-nosed business, pussies.

So, I basically went in and settled the whole deal with all the vendors at around 30 cents on the dollar—everybody got something. I got maybe $200K out of it for a few solid hours of work, and they always had someone drive over with my checks. In the end, the company made it, sold their tech, and employees and investors made off damn well. I still pat myself on the back over that one.

But it wasn’t a moral issue on any level. Children: it’s called: a contract.

It’s hilarious to me…and even your little whore in the White House—aka “Da President”—engages in the guilting schtick. Back when the bubble burst, do you recall him assigning moral weight to paying your mortgage payments vs. walking away from a house encumbered to the tune of $300K, but worth maybe a hunerd on a bright spring day? I sure do. Church & State: bedfellows.

Allow me to hold school on your ignorant asses.

Contracts are not moral bonds. Contracts (as we know them, now) are state machinations (enforced by force) that serve to simulate moral obligations but really only carry the weight of legal enforcement by either side.

“I’ve got your back, bro.” “I’ll take care of it, mom.” “Whatever you need, let me know.” These are moral obligations, and the cost of not seeing to them is that it’s data for the one you promised, as whether to ever seek you out or rely on you again, and whether or not your status in the family or circle of friends goes up, or down. Anarchy begins at home. It always, always begins at home: until such point as the home is just an extension of the state; and that experiment failed on that level in about 1990.

When you get married—that church crap is just for show—you’re entering into a state enforced contract, the terms of which can change under your feet. It doesn’t matter when or in what state you got married. Divorce proceedings are highly different now than 30 or 40 years ago and if you got married 50 years ago with certain expectations, then, well, you’re shit out of luck, lover boy.

It was only moral pretend. That minister or priest whore for the government did his job. Solemnity ends at the door of edifice.

Similarly with the most common form of consumer debt: CCs. You have one single, inviolable right in every single credit card contract. Want to know what it is? Ready?

– Use it, or don’t.

The only other right you have is that the bank uphold their end under the continuously modifiable terms, and I can assure you that it’s their business to do so. Class-action lawsuits that get you a check for $2.35—and millions for the attorneys—are mere mosquito bites. When you get a credit card, you’re signing a contract that allows the issuing bank to modify the terms (interest, late fees, overlimit fees, penalty fees, you didn’t let your dog out to pee before 8am fees, and all the other fees they can come up with a name for) any time they want. You also signed up for the fact that all they have to do is email or smail you something in 4-pt type and once you use the card again, you’ve enthusiastically agreed to the modification that makes the blood of your firstborn son collateral for your loan—or anything else they’ve come up with, in bounds of the statutes their DC Lobbying Law firms have come up with dutifully, with your “duly elected representatives.” …It’s rumored that your representatives really give ’em hell over those 4-martini, poached Maine lobster lunches.

Let me boil it down for you, especially those hung up on the “morality” of paying your “obligations:” All commercial and consumer contracts are meant to be enforced by one of the parties to the contract, in league with the State. Guess who it’s being enforced against? The other party; i.e., you. So tell me about “your case,” again. You know, that one where the banks are screwing you over as though it’s an amazingly new thing and you’re shocked they’d do that. I’m more interested in entertaining the banality of that car dweller in the local convenience store parking lot who’s just one ticket or a dozen scratchers away from winning the lottery.

Here’s the essential point, though; it’s the take home: You’re all living in and playing in a game with rules. The rules are adjudicated by the game maker. But it has nothing at all to do with moral obligations, i.e., the strength of your character. You violate the rules? There’s an app for that. And that goes for both sides.

The essential nature of a contract is that it affords rights to both parties. For example, the essential aspect of a mortgage or deed of trust is that so long as you pay, it’s your house. If you don’t, they get to take it back, and most of the time, with no other recourse. It’s elegant, actually. Unsecured debts like credit cards can be far more messy. Your only right is to use it, or not, but you still have to pay any balance. If you don’t, they have all sorts of recourse in terms of attacking assets, levying bank accounts, garnishing wages, etc.

And get this: if you live in a community property state, they can even go after your spouse or registered domestic partner’s assets, even if they had zero to do with the debt. Indeed, even if they had not one single clue about it.

More later. I’m just getting started.

Richard Nikoley

I'm Richard Nikoley. Free The Animal began in 2003 and as of 2021, contains 5,000 posts. I blog what I wish...from health, diet, and food to travel and lifestyle; to politics, social antagonism, expat-living location and time independent—while you sleep—income. I celebrate the audacity and hubris to live by your own exclusive authority and take your own chances. Read More


  1. beans mcgrady on September 3, 2013 at 22:49

    Parts of this remind me of a hilarious story I read not too long ago.
    I wish I had a link, but the long and short of it is that a guy in maybe England, took a credit card contract, scanned it into his computer, changed the terms, including all sorts of fun stuff like no limit, no interest, and fees/penalties for the card company whenever they sent him notices, he signed it and sent it back.
    The company folks didn’t read the new contract because it looked just like the old one, someone signed it and then, blam.
    When the card company failed to live up to the terms of the contract, he sued them and won.
    Fun with contracts, clever bastard.

  2. Rambo Thompson on September 4, 2013 at 01:08

    Um, I pay my credit card because that sweet young teller at the local branch will have to take a pay cut if I don’t. What right do I have to take food out of her mouth just because I choose to live beyond my means? It’s in my self-interest to respect the rights of others, and we all know that self-interest is the basis of morality.

  3. Sean on September 4, 2013 at 05:11

    The economist Coates who just died came up with something similar about externalities. Basically that externalities are a two-way street–a contract, typically mediated by property rights. Steve Landsburg does an excellent job summing up Coates here:

    How did Pigou—and every other economist in the world—manage to miss this point until Coase came along? According to Coase, it’s because they were obsessed with the faulty notion of “fault”—the idea that if there’s a problem, it must be someone’s fault, and we should begin by identifying that someone.

  4. Richard Nikoley on September 4, 2013 at 06:02

    @ Rambo

    Let me ask you a question. Let’s say your dad, mom, son, daughter, or etc. comes down with some illness there’s no insurance coverage for, or loses their job and funds run out, or gets wrapped up with a DUI or some other legal trouble and it takes $25K in legal fees to keep them out of jail…and etc. etc. OK, 2 questions:

    1. who takes precedence, them or that sweet bank teller if you don’t have the resources to see to both?

    2. is helping your loved ones to the extent that it crashes your own financial situation living beyond your means?

    @ Sean

    Thanks for that. I was unaware. But yea, it seems that in the set of choices in such situations, it’s always “who is at fault,” never considering the possibility nobody is. It’s similar to what I always say about taking action in any given situation: always remember that one of your options is to do nothing.

    Anyone ever heard of “no-fault divorce?” Which brings me to another observation, which is, it’s hilarious how solemn people are about paying unsecured debts, compared to how flippant they often are about marriage vows.

  5. CatherineAkaCate on September 4, 2013 at 07:42

    “Now, legal plunder can be committed in an infinite number of ways. Thus we have an infinite number of plans for organizing it: tariffs, protection, benefits, subsidies, encouragements, progressive taxation, public schools, guaranteed jobs, guaranteed profits, minimum wages, a right to relief, a right to the tools of labor, free credit, and so on, and so on.”
    ― Frédéric Bastiat, The Law

    My word is more important to me than legal loopholes which is why I am so cautious when borrowing money. I don’t think people that faithfully pay their debts are hilarious at all because they have a moral code that supersedes the state.

    You are rich if and only if money you refuse tastes better than money you accept.
    Nassim Nicholas Taleb

  6. Richard Nikoley on September 4, 2013 at 07:54

    “I don’t think people that faithfully pay their debts are hilarious at all because they have a moral code that supersedes the state.”

    1. “faithfully pay their debts” – not a single person in human history has ever paid a debt when they had neither the money to pay it nor access to someone else who did.

    2. “moral code that supersedes the state” – your creditors don’t. not a single one. so go ahead and and take a knife to a gun fight if you like, and see if I care.

  7. CatherineAkaCate on September 4, 2013 at 08:01

    Maybe people shouldn’t ‘register’ their domestic partner or relationship with the state to get the treats, then the state would not go after them? You invite The Man in to your personal life, he is there to stay.

  8. Richard Nikoley on September 4, 2013 at 08:15

    “Maybe people shouldn’t ‘register’ their domestic partner or relationship with the state to get the treats, then the state would not go after them?”

    Yep, but it’s actually deeper than that. Subject of a future post. The issue is primarily with the idea of “community property.”

    There are nine community property states, mostly in the west, courtesy of the Spanish, via Mexico.

    Washington, Idaho, California, Nevada, Arizona, New Mexico, Texas, Louisiana and Wisconsin. The rest are common law states in terms of how spousal assets and debts are viewed.

    Your concern is really misplaced because the feds or states will always get you if they want. In common law states, if you open an account in your name only and it goes sour, only you are liable. That is, only your wages could be garnished after a judgment is obtained and if you maintain separate bank accounts, only your account can be levied. Same for other assets like vehicles and real estate. In short, spouses can hold separate assets and liabilities from one-another.

    In community law states—unless you jump through a lot of legal loopholes, such as prenups or specific filings (e.g., in CA, you can make real estate separate property by filing with the county) and such, then all assets are common, as are all liabilities even if registered or recorded in only one spouse’s name. So, for instance, a spouse could rack up a lot of debt without even the knowledge of the other spouse and once a judgment is obtained (and they don’t even have to name the other spouse in the lawsuit), they can go after the other spouse’s assets, including wage garnishment, bank levy, their car if there’s equity in it, etc.

    Be careful what you ask for. Double edged swords. All that jazz.

  9. BigRob on September 4, 2013 at 11:38

    Come on Richard. You’re a “Paleo Blogger”. Please find some way to blame all of this on grains and starches.

  10. Richard Nikoley on September 4, 2013 at 11:49


  11. LeonRover on September 4, 2013 at 12:28

    Rich, it seems you meant community property states in the final para of your last comment – as CA is community prop.

  12. Richard Nikoley on September 4, 2013 at 13:33

    Indeed I did, Leon. Fixed. And thanks.

  13. CatherineAkaCate on September 4, 2013 at 13:39

    2. “moral code that supersedes the state” – your creditors don’t. not a single one. so go ahead and and take a knife to a gun fight if you like, and see if I care.

    I am trying to make the point that I don’t aspire to be like my creditors and how they regard debt doesn’t change my desire to pursue my own concept of honor. (which is true freedom) I can even argue that building a network of like minded individuals is rewarded financially because one can become increasingly more selective about business partners. The free market is much about reputation.

  14. Richard Nikoley on September 4, 2013 at 14:19

    “I don’t aspire to be like my creditors”

    Wow, earth shattering. You are SOOOOOOO HONORABLE! I’ll bet that you don’t aspire to be like your local 7-11 owner, the gas station owner, or any of those rifraf, right? And yet you doubtless do business with tons of people you don’t aspire to be like (solemn, respectful nod, right here).

    Why not simply be honest and admit that it’s not about the people, but that you prefer to pay as you go for the most part? Nothing wrong with that at all. But the moral superiority is just bullshit. Money lenders of liquor sellers, everyone is going to eventually use the state if it comes to it in a dispute and you’re making meaningless distinctions.

    There is no honor at all in not meeting force with force. And if that’s the state, then that’s the choice of weapon for that fight.

  15. CatherineAkaCate on September 5, 2013 at 11:01

    “There is no honor at all in not meeting force with force.”
    It is not always the most efficient way to conduct business or build a network of friends is my position.
    Gosh, and here I was hoping you would roll out The Code of Hammurabi for debate. I have great hopes for the new underground economy, underground health care, etc Contractual Law is going to collapse of it’s own weight and we will all be increasing left with the worth of our word.

  16. Robyn bunting on January 25, 2014 at 06:24

    Can you explain how the division of labour could work without contract?

    Why would contract not arise in an anarchic society?

    • Richard Nikoley on January 25, 2014 at 10:22


      I’ve never said anything contra people freely contracting for anything they want.

  17. Robyn bunting on January 26, 2014 at 01:07

    Maybe i misread you. You seem to be suggesting that contract is a creature of the state, and can be ethically reneged upon, something like the current worldwide de facto rejection of IP laws. You refer to contact as “state machinations “though i acknowledge you also say, “as we know them now.”

    But the tone of the article is basically that one is not bound by contract morally. “Contracts are not moral bonds”. This looks like an unqualified statement applying to both anarchy and statism.

    If they are not moral bonds how would society work? I assume we agree that that which works to preserve and extend the DOL (=society) is moral and what works against it is not. You seem to be saying something analagous to, “non-aggression is not a moral bond” or “rejection of fraud is not a moral issue”. reneging on a contract seems to be fraud or something very close to it.

    But perhaps we have simply not come to terms.

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