Can’t Pay Your Debt? Go to Jail!

To many of us, going to jail because we can’t pay our bills sounds harsh.  However, ‘Debtors Prisons’ were a stark reality throughout most of history.  Thankfully, the law has caught up to the times and we no longer send people to prison because they cannot afford to pay a bill… or do we? Disturbing new reports indicate that debt collectors in Missouri, Illinois, Alabama and a few other states are using a legal loophole to justify jailing poor citizens who legitimately cannot pay their debts.   Now, jailing someone for unpaid debts is Unconstitutional, at least since the early 1970’s.  But, payday lenders and others have found a way to not only imprison people, but also to have the court system act as a collection unit.  How so?  We’ll tell you.

Debtors prisons were borne out of financial necessity, or at least that’s what creditors believed.  Prior to the 19th century, these institutions were a far too common way to deal with unpaid obligations.  Just like it sounds, people who were unable to pay their debts were imprisoned until they had the means to do so.  Ironically, debtors were charged room and board, and were allowed no way of generating the necessary revenue to repay their debts. Given the impracticality of not allowing prisoners to work off their debt, prisons utilized inmates for cheap labor.  Many friends and family members took it upon themselves to raise the cash needed to free their loved ones, perhaps the most famous among them being Charles Dickens, who worked diligently to repay the debts of his father.  It is no coincidence that the dark and disturbing nature of Dickens’ experiences comes through vividly in his novels, as he witnessed the deplorable treatment his father suffered in Marshalsea, a debtor’s prison in England.

Fast forward to 2012, and there are few civilized human beings among us who would condone the imprisonment of the poor and destitute… save for of course for payday lenders.  The St. Louis Post-Dispatch detailed how lenders are exploiting the judicial system. According to the newspaper, creditors file, and receive, a judgment in civil court after an obligation goes unpaid. The debtor is summoned to court for an “examination” to review their financial situation, in hopes of coming to an equitable resolution.  If the debtor fails to appear, which is often the case, the creditor can request a “body attachment, which in reality is an arrest warrant. Once the warrant has been issued, the police will enforce the action given the opportunity.  If the debtor is jailed, they will have to wait for a court hearing, or post bond.  Here’s the rub – judges often set the debtor’s bond at the amount of the debt and turn the bond money over to the creditor. So, not only are creditors circumventing the law, but they’re turning the judicial system into an extension of their collection efforts.

Although the U.S. abolished debtors’ prisons in the 1830s, more than a third of U.S. states allow the police to imprison debtors for nonpayment due to the aforementioned clause.  These bills include health care, credit cards, and even auto loans. Imagine going to jail for your Discover bill – crazy! Even worse, some states also apply “poverty penalties,” including late fees, payment plan fees, and interest when people are unable to pay all their debts at once, according to a report by the New YorkUniversity’s BrennanCenter for Justice. For instance, Alabama charges a 30% collection fee, while Florida allows private debt collectors to add a 40% surcharge on the original debt. Some Florida counties also use so-called collection courts, where debtors can be jailed but have no right to a public defender.

Obviously, this practice does not sit well with legislators, especially since many of the victims are living on funds that are legally protected from being used for outstanding debt judgments, such as Social Security, unemployment insurance, or veterans’ benefits.  The situation prompted Illinois legislators to pass the Debtors’ Rights Act of 2012, which requires two “pay or appear” court notices to be sent to debtors before an arrest can be made.  It also prevents creditors from calling for multiple examinations, a common practice, unless the debtor’s financial state has significantly changed. The bottom line is that whenever you receive a notice to appear in court, make sure you do so.  Now I’m not a lawyer, so please don’t depend on me for legal advice. You need to do your homework on this issue. For additional information on collection rights, please visit and download a free copy of our Learn Now or Pay Later guide. Until next time, I’m Thomas Fox for Cambridge Credit Counseling.


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