I'm flat broke. Busted. And I have big credit card, personal loan, medical, and vehicle loan debts. You don't want to know how much. Six figures. I need to get out of debt for free. I have read online about changing your identity, or using a different tax ID to start over. Debt elimination, really, I'll do anything. How do I start over when I have nothing?
Before I explain proven, legal ways to get out of debt, allow me to discuss several of the schemes you mentioned and alluded to in your question and why they will not work:
These types of schemes resurface every 10 years or so. These string together a series of out-of-context quotes from federal law, the US Constitution, court decisions, and speeches from politicians to create a document that orders the lender to cancel or forgive the sender’s debt. The schemes may state an endorsement from the Federal Reserve.
The especially insidious part of these schemes is the perpetrators will charge a large fee for these documents, or in some cases up to 15% of the consumer's existing debt. In reality, a consumer or mortgage debt cannot be eliminated by presenting a creditor a bogus document not based on law. At best, debt elimination schemes will delay collections actions temporarily.
Whenever you apply for a financial account, credit card, job, tax return, or loan, your identity is keyed to your Social Security number. An alternative tax identification number, and perfectly legal one at that, is a business tax identification. Misguided people recommend consumers apply for and use a business tax ID as a replacement for their Social Security number. This will work for a short period of time, but will result in negative consequences. In other words, you cannot replace your Social Security number with a business tax ID.
|Debt Problems? Avoid These Bad Ideas|
|Bad Idea||How it Works — Supposedly||Why it’s a Bad Idea|
|Debt Elimination||Present your creditors a Declaration of Voidance, or Bond for Discharge of Debt, or Redemption Certificate. These documents purport to satisfy the debt.||Although these documents have the appearance of being legal documents, they have no basis in law. These documents are not approved by the Federal Reserve, as proponents suggest.|
|New Tax ID||Get a business tax identification number, which is perfectly legal, but then use it in lieu of a Social Security number when applying for credit.||Using a business tax ID as one’s personal tax ID number, especially for the purposes of misleading a creditor about one’s identity, is fraud.|
|New Identity||Create an alter-ego using either a faked ID or a variation on your existing ID. Move to a new location and abandon your existing ID, credit cards, Social Security number, and so on.||Takes a great deal of work, and one slip-up, such as using an old credit card, cell phone, or telephoning a family member can lead a diligent skip-tracer to your door.|
|Flee the Country||Residing in a non-US country stops creditors in their tracks.||If your debt is large, creditors will domesticate the debt in your new country of residence, and/or freeze your US assets.|
This is more ambitious than just a new tax identification number. The challenges are two: Leaving your old life behind and severing all contacts with family and friends permanently; and creating a new identity for yourself that does not involve stealing someone else’s identity.
You may think, "If Butch Cassidy and the Sundance Kid can flee the Wild West for Bolivia to start over, then why can’t I?" Unfortunately, if you are not secretive about your location and your debts are large, US creditors may domesticate your debt in your new country of residence, and use the local court system to file a judgment against you there. Alternatively, if you leave assets in the US, the creditor may obtain a US judgment to levy your accounts. The larger the amount due, the more diligently a creditor will pursue you.
How do you get out of debt for free? You can’t. If you have an overwhelming amount of debt (you mentioned “six figures” in your message) then the lowest-cost method to become debt-free is to file for bankruptcy. Bankruptcy is also the fastest path to debt freedom if you qualify for a chapter 7 discharge. Bankruptcy is not free, however, and you should expect to pay a bankruptcy lawyer $1,000 or more to work on your case. You can file a case on your own (called pro per), but I recommend against it for two reasons. First, if your case is at all complicated, which most are, you want a person who files bankruptcy cases for a living to handle the roadblocks. Most pro per bankruptcy filings are dismissed, usually because the filer screwed-up a basic part of the work. Second, if your lawyer makes a mistake, you can file a malpractice claim against him or her.
Let us say you filed bankruptcy recently, or your debts are otherwise not dischargeable in bankruptcy. Your other option for resolving a variety of account types totaling a large sum is debt settlement.
Debt settlement is a process where you enroll your debts with the debt settlement provider. You stop making payments to these creditors. Instead you make monthly payments to a special bank account. As you make these payments, a negotiator at the debt settlement company negotiates lump-sum settlements with the enrolled creditors for amounts less than the full balance due. How much less? It depends on the creditor, the age of the account, and other factors. Talk to a debt settlement provider about your debts to learn what your expected monthly payment will be and your time to debt freedom.
Credit counseling is another debt resolution strategy. This may not be appropriate for people with large debt balances, such as yours, because the consumer repays the entire balance due over 60 monthly payments. The rule of thumb is each monthly payment is roughly 3% of the amount due. If, to pick a number, your debts were $100,000, your monthly payment would be about $3,000. Credit counseling has advantages for people who can afford the payments. Follow the link I just mentioned to learn more.
Another common form of repaying debt is with a cash-out mortgage refinance or a second mortgage (home equity loan). Neither of these are free, and both require you to have a substantial amount of equity in your property. Both also require a high credit score and a two-year income history.
You also have do-it-yourself tactics available. See the Bills.com article Consolidate Your Debt Yourself to learn, step-by-step, how to settle debts on your own.
There is no way to get out of debt for free. The lowest-cost method to become debt free is bankruptcy. Consult with a bankruptcy lawyer to learn more about this option. If you cannot file for bankruptcy, then consider debt settlement.