Did you know you can get thrown in jail for not paying your debts? Yes, in America, in the 21st century, debt collectors are effectively deputizing local police forces to collect on debts, manipulating the system and using your tax dollars to do their dirty work.

Debt collectors buy five to six year old debts for pennies on the dollar from companies that have already written off ever collecting the debt. Then, the firms, frequently run by attorneys, employ a system of auto-dialers and call center teams to get the cash. They aim to get double what they paid for the debts. Anything after that is just gravy.

In some states and counties, the collectors can seek court orders to get debtors to pay, which can result in a civil warrant for the debtor's arrest. Some precincts then apparently have the luxury and manpower to enforce them and a deputy sheriff shows up on the debtor's doorstep and arrests them. The debtor can spend 24-48 hours in jail until their court appearance.

Debtors often don't even know that there is a warrant out for their arrest until they get the knock on their door and the bracelets on their wrists.

The point of bail is get a person to show up to court. But in some cases, the judge will set the bail at the exact amount of the debt owed.

"It's certainly an efficient way to collect debts, but it's also highly distasteful," Hennepin County District Judge Jack Nordby told the Star Tribune. "The amount of bail should have nothing to do with the amount of the debt."

Deborah, a debtor who was arrested and spent 25 hours in jail, said she was groped in an elevator during her incarceration and slept in a cell with 16 other women, one of whom offered her drugs.

Her crime? $250 in credit card debt.

"We hear every day about how there's no money for public services," Deborah told the Star Tribune. "But it seems like the collectors have found a way to get the police to do their work."

So wishing you the best in safety,

Last month I wrote about “what is asset protection?” and gave you some examples about mortgage modification and how clients are significantly reducing monthly mortgage payments while increasing family cash flow of approximately $1000 per month.

I want to give you another example of asset protection and cash flow and how it can relate to what we call a “doubling effect” strategy.

In this example Joe Craft CPA, CFP personally completed and prepared one year of tax returns for a client’s corporation and personal tax return. Preparing them in combination allows a Certified Public Accountant to evaluate both planning and tax objectives in a combined manner. The result was as follows:

In 2007 the client’s gross income from business was over $250K and in that year his last accountant prepared the returns for this individual which resulted in federal and personal income taxes over $30,000.

In 2008 the client came to our firm Adams, Ewing & Craft, LLLP our accounting division and now the client’s gross income from business was now over $300K a larger problem. As a result of good business planning, deferral and over all tax planning the client now paid a combined federal and state income tax of $232.

That is a huge difference.

Now what if the client could do this year after year and what would be the expectant result. Well first the client could pay down their mortgage. Not a bad way to go and the home mortgage would definitely go down due to compounding principal monthly payments, however there may be a better way to go.

Possibly a better strategy would be for the client to loan the money to his Nevada Corporation, create an IET – Income Estate Trust which would invest into a qualified fund earning 36% per year. This now allows his company to create a monthly cash flow of approximately $1000 per month. The client could now take a secured loan from the company as a Director and lien up the real estate all the while paying down the principal debt of $1000 each month. This strategy is much more effective and creates asset protection.

We would further recommend that the client “double strap” up the home by setting up a Family Limited Partnership with a Life Tenancy Residential Trust removing the property out of the family personal name of the client and create another IET for the benefit of the client and beneficiaries. Again more cash flow. As you can see this is very, very effective!

So wishing you the best in safety,