Advice from Nashville's leading Financial Aid Advisor Dave Ramsey
Author of Financial Peace and The Total Money Makeover
Should I borrow against back child support I'm due?
I am a divorced single mother. I was recently laid off and I'm owed child support that is $20,000 in arrears. I received a flyer in the mail about getting loans on notes. Since unemployment doesn't cover what I was making, I called the loan number to get more information. They said they have investors who will advance me the money owed on the child support and then they would collect the money from the father. I've got a funny feeling about this. What do you think?
Sonya in Tampa, FL
There is a way for the company to do this. However, for them to make any money on this deal they would have to buy the note from you for a discounted amount - say $10,000 cash - then they collect the $20,000 from him. They make $10,000.
I used to buy real estate notes. For instance, if you sold your home and personally held the mortgage, and someone was paying you monthly on that mortgage, then I could buy that note from you. But I wouldn't pay you full face value for it because I wouldn't make anything on it. I'd just have my money out there collecting on your interest rate for it. In your case, child support doesn't have interest due, so they're going to deeply discount it because there's nothing to put a lien against except his hide and that's not really collectable. If it was, you wouldn't be owed $20,000.
If you do this deal, you're going to be giving up a lot of the money, but if he's not paying anyway you haven't really lost anything. However, be sure that if you do this you have an attorney or someone look at it with you because it's going to be a multi-thousand dollar transaction. Get some legal advice. Sometimes these things are done "with recourse" which means if they can't collect it from him you have to pay it - and you don't want to do that.
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