People with teetering finances frequently seek alternatives to New York bankruptcy. It seems to be a sensible thing to do, but wherever there are people who need to make quick money, there will be others who will sell them what they want to hear—and nothing else. One example you may have heard of is multi-level-marketing companies (MLMs), which are often compared to pyramid schemes. Participating in an MLM is almost always going to cost participants money, making them a poor New York bankruptcy alternative. Here’s why.
An MLM functions much like a pyramid scheme, which are illegal. A pyramid scheme works by one person at the top recruiting more people for fees in exchange for a cut of the future fees they in turn generate by recruiting additional participants. For example, the person at the top might ask five participants each for a $5,000 buy-in fee with a promise of 20 percent of the buy-in fees of each additional person those five recruit. These participants are motivated to find more than five persons each to recoup their buy-in fees and make a profit themselves. Meanwhile, the person at the top earns pure profit. At some point, algebra catches up with the scheme, and it collapses because it runs out of new participants. With the example here, five times the number of participants at each level reaches more than six billion after fourteen levels.
MLMs differ from pyramid schemes in that they do tie their recruitment schemes with selling some kind of product to the next level of participants for resale. MLMs also include reward systems for participants and are saturated with language of achieving one’s dreams, self-made success, and sentimental stories of successful participants.
Although there is a product involved, as with pyramid schemes, the group at the bottom will be unable to resell it to either more recruits or the public generally. It doesn’t help that the product often expires in participants’ homes, making it worthless, or that recruiting people directly adds more competitors. Featuring a product for MLM participants to sell helps protect the schemes from the Federal Trade Commission (FTC), and it gives an MLM a focus for its recruitment advertising, e.g. work from home, set your own hours, become an entrepreneur, etc.
MLMs will accept credit cards so new recruits can participate. That means participants can amass a substantial amount of debt that they will be unable to repay. Studies generally conclude that more than ninety-nine percent of MLM participants lose money after expenses. Consequently, MLMs can be a contributor to a bankruptcy situation.
The FTC’s Web site on MLMs is here.
If your financial circumstances are deteriorating, joining an MLM will not help. Very few are reputable, and if you have the sales skills, you can probably get a real job in sales. If participating in an MLM has left you with unpayable debt, then talking to an experienced New York bankruptcy lawyer can help you assess your options—and help you stop losing money.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.
