Could Your Outstanding Debt Land You in Jail?

It’s no secret that not paying your debt obligations can cost you a lot of money and headaches in the long run, not to mention frequent letters, phone calls and court hearings with debt collectors.

I hate to break it to you, but it can get worse than that. You could end up in jail. Here’s how:

The harsh reality of “debtor’s prison”

If a creditor becomes fed up with its initial attempts to collect on an outstanding debt you owe, it may file a lawsuit against you. It’s essential that you at least show up to plead your case.

Even if you feel the initial hearing is a complete waste of time because you have no means to pay, failing to appear can enable the creditor to obtain a judgment against you.

A judgment can allow the creditor to go to extreme lengths to collect the debt. This includes wage garnishment, bank account attachment and liens against real estate.

Subsequently an examination hearing is held to review your ability to pay. If you don’t show up, a body attachment issued by the court can result in your arrest.

Wrote the St. Louis Post-Dispatch in 2012:

Debtors are sometimes summoned to court repeatedly, increasing chances that they’ll miss a date and be arrested. Critics note that judges often set the debtor’s release bond at the amount of the debt and turn the bond money over to the creditor — essentially turning publicly financed police and court employees into private debt collectors for predatory lenders.

Criminal charges

That’s not the only way people who fall behind on bills can be sent to jail.

Despite a state law that seems to prohibit the practice, payday loan companies in Texas are pursuing criminal charges against those who can’t pay. The Texas Observer reported last year:

An Observer investigation has found at least 1,700 instances in which payday loan companies in Texas have filed criminal complaints against customers in San Antonio, Houston and Amarillo. In at least a few cases, people have ended up in jail because they owed money to a payday loan company. Even when customers avoided jail, the Observer has found, payday loan companies have used Texas courts and prosecutors as de facto collection agencies.

Failure to pay court fees and fines

Another form of debtor prison is the jailing of those who are unable to pay court fees and fines resulting from minor criminal cases. Says a 2012 report by the Brennan Center for Justice at New York University School of Law:

Despite decades-old Supreme Court cases ruling that incarceration solely for debt is unconstitutional, a 2010 Brennan Center report, “Criminal Justice Debt: A Barrier to Reentry,” uncovered existing modern-day debtor’s prisons. Now, although some states are creating more fiscally sound and fair policies, increasing numbers of states are creating new pathways to imprisonment based solely on criminal justice debt.

The cost of jailing these people often exceeds the amount they owe to the court, the report says.

In yet another permutation, some jurisdictions allow private companies to supervise those who are on probation, and those firms impose larger and more numerous fees. Fall behind and you can find yourself behind bars.

The Huffington Post reported recently, “[A] report by the Human Rights Watch organization revealed that thousands of courts in Southern states jail people who can’t keep up with the fees imposed on them by private probation companies.”

Another new report, by the ACLU of Washington and Columbia Legal Services, found that the practice of jailing poor people who can’t afford fines and fees is alive and well in Washington state.

How widespread are these practices? CBS MoneyWatch says:

Roughly a third of U.S. states today jail people for not paying off their debts, from court-related fines and fees to credit card and car loans, according to the American Civil Liberties Union. Such practices contravene a 1983 United States Supreme Court ruling that they violate the Constitution’s Equal Protection Clause.

How to evade the “debt police”

Under the Fair Debt Collection Practices Act, regular (not court-related) creditors are limited in the ways in which they can pursue you to collect on delinquent debts. So in essence, it’s not the debt that lands you in jail, but failure to tend to it in a proper manner.

To protect yourself, you should:

• Be sure to carefully read any correspondence received from creditors.
• Attempt to settle your debts with the creditor before it reaches the court system.
• Always show up at court to plead your case. The creditor may just give up once it learns collection is simply not possible in your case.
• Dispute any incorrect amounts presented in court with supporting documentation.
• If necessary, seek assistance from a lawyer.

If the debt is already in the hands of a debt collector and you need additional assistance with the resolution process, the Consumer Financial Protection Bureau offers a few templates to help get you started.

Were you aware that outstanding debts could land you in jail? Let us know in the comments below or on our Facebook page.