For my very first posting on Beyond Dollar & Sense!, I thought that I would write about an issue that came to my attention late last year…one that I have a personal familiarity with.
Back in the early 1990s, I witnessed my mother stressing out as a local sheriff’s deputy back in Michigan arrived at her front door, threatening to take her to jail for failure to respond to a civil judgment levied against her. I also remembering her running around scrounging for every dollar she could get her hands on trying to avoid going to jail (for the first and only time) at the tender age of 50. I remembered thinking “Is this legal? There is no more debtors’ prison!”
Fast forward some 20 years later, to a new century, a new millennium…and the same reality of debt collection. Last year, The Wall Street Journal published an article last year entitled, “Welcome To Debtors’ Prison, 2011 Edition.” In the piece, the writer chronicled how, in some states, individuals who find themselves owing money on credit cards, automobile loans, or—in my mother’s case from the 90s—medical bills face the very real prospect of being jailed for debt payments. No, this isn’t the hyperbole of some anti-capitalist leftist…it’s a practice of reality.
Despite the fact that debtor’s prison in America—as a codified law—was outlawed by both the states and the federal government in the 1830’s, modern-day creditors in the form of “aggressive and centralized” collection agencies are taking advantage of existing laws by buying up unpaid debt, and leveraging the power of local courts to collect. And although a full third of U.S. states allow for the jailing of debtors who can’t (or won’t) pay their outstanding bills, six states in particular—Arizona, Arkansas, Illinois, Indiana, Minnesota, and Washington—are stand out as hotbeds of this practice. Before you start saying, “Good…people should pay their debts,” individuals in some of these cases are being jailed without having any idea that they were being sued to collect a debt (not that in these economic times, people are necessarily fixated on being sued for an outstanding bill…not when they are struggling to pay more immediate and more bills).
This does not mean that the practice is an arbitrary procedure. Arrest warrants are generally issued if a borrower defies a court order to repay a debt, or simply doesn't show up in court while a debt is being pursued by interested parties. And among the most frequent seekers of these warrants are retailers, credit-card issuers, landlords and debt collectors, according to court filings and interviews with judges and lawyers.
Driven by a bad economy, high consumer debt, and a growing collection industry that buys and aggressively pursues bad debts, collection agencies have been increasingly employing the use of warrants in order to leverage the power of local and state courts to jail debtors…all in an effort to increase profits. Though not every warrant in every case related to attempts to collect on personal debt results in an arrest and subsequent jailing, in jurisdictions where the state gives courts explicit sanction to do so, judges can (and do) jail individuals for periods up to and including “indefinite incarceration” for failure to pay as little as $100 in debt to a given company. Whether a debtor is locked up depends largely on where the person lives because simply put, there are no universal applied legal standards for the practice. Enforcement in most cases is inconsistent from state to state, and even county to county.
in McIntosh County, Okla., south of Tulsa, issued about 1,500 debt-related arrest warrants, up from about 800 a year before the crisis, according to a court clerk. More than 950 borrowers got similar warrants in Salt Lake City courts last year. Maricopa County, Ariz., officials issued 260 debt-related warrants in 2010.
According to Spokane, Washington attorney Michael Kinkley, “(The) law enforcement system has unwittingly become a tool of the debt collectors.” Kinkley, who has represented arrested debtors, added that, “debt collectors are abusing the system and intimidating people and law enforcement is going along with it." And with no national statistics being kept on the number of debtors across the country who are arrested for this particular reason, the practice remains largely unnoticed outside of legal circles. One consumer advocate, deputy director Robert Hobbs of the National Consumer Law Center has even gone on record with his “suspicion” that “the debt collection industry does not want the world to know these arrests are happening because the practice would be widely condemned.”
There could be something to Hobbs’ suspicions. According The Wall Street Journal article from last year, J. Brandon Black, president and chief executive of Encore Capital Group, Inc., the country’s largest publicly traded debt-buying firm by revenue,
last year began requiring law firms handling its cases to follow a "code of conduct" that includes this sentence: "Under no circumstances should a firm cause a consumer to be taken into custody involuntarily."
According to the article, “the San Diego company decided to stop threatening borrowers with jail because the practice made Encore look bad.”
The recent profit spikes of the three top collection purchasing companies in the U.S., responsible for the initiating the majority of debt-related warrants
Other anecdotal evidence adds credence to Hobbs’ suspicions. Last year,
Vanderburgh County, Ind., Superior Court Judge Robert Pigman asked Indiana's highest court to review the legality of debt-related warrants after law-enforcement officials complained they can't quickly access arrest orders for dangerous criminals because their computer system is clogged with debt cases.
In other areas across the country, some judges are issuing fewer debt-related arrest warrants because law-enforcement officials concerns such cases detract resources from more relevant offenses, such as pursuing violent offenders.
So what’s it like to be pursued by both companies and law-enforcement for the relatively minor offense of owing debt? Consider the following cases from part of the Minneapolis Star Tribune series, “In Jail for Being in Debt.”
As a sheriff's deputy dumped the contents of Joy Uhlmeyer's purse into a sealed bag, she begged to know why she had just been arrested while driving home to Richfield after an Easter visit with her elderly mother.
No one had an answer. Uhlmeyer spent a sleepless night in a frigid Anoka County holding cell, her hands tucked under her armpits for warmth. Then, handcuffed in a squad car, she was taken to downtown Minneapolis for booking. Finally, after 16 hours in limbo, jail officials fingerprinted Uhlmeyer and explained her offense -- missing a court hearing over an unpaid debt. "They have no right to do this to me," said the 57-year-old patient care advocate, her voice as soft as a whisper. "Not for a stupid credit card."
Uhlmeyer’s case is an extreme one, but other individuals have had as equally trying an experience as hers.
Deborah Poplawski was feeding a parking meter in downtown Minneapolis when city police pulled up, arrested her and took her off to jail. She was forced to change into jail-issue underwear and an orange uniform and sleep in a room with a dozen women, one of whom offered her drugs. She spent 25 hours in jail. ("Unpaid debt? You could go to jail")
As alluded to previously, the single biggest reason that collection companies/debt buyers are so successful in initiating these arrest warrants is because most debtors simply fail to appear in court during civil procedures—some 94% by one New York-based nonprofit’s estimates of residents in that area. That same nonprofit, found that some “71% of people sued were either not served with the required notice or served improperly,” and “of the suits brought by debt buyers, 35% were clearly meritless.”
So how can you—if you reside in a jurisdiction where such practices are a possibility—avoid being jailed for failure to pay off your personal debt? Here are some suggestions
Remember, bill collectors can legally seek warrants to arrest people who don't respond to legal action over debts.
• Carefully read documents from collectors. You may not recognize a creditor's name or the amount owed. Old debts often are sold to debt-buyer firms, which tack on interest and fees.
• If you get a summons and complaint, it means you are being sued and the case is going to court. A summons can be delivered by hand or by mail, and needn't be filed in court first.
• Respond promptly to a summons, admitting or denying the debt and disclosing requested information. Watch for court hearings. If you ignore such legal matters, the collector can win a judgment by default and seek a warrant for your arrest.
• Debtors have some rights even if they owe money. For example, Minnesota law prevents collectors from obtaining judgments after six years.
• If you want professional advice, but can't afford a lawyer, ask the court clerk about volunteer attorneys who answer questions about collection cases.
Sources: National Consumer Law Center, Federal Trade Commission
Other useful advice to protect yourself?
• If you are either served court papers or contacted by a collector by phone or in writing, you must show up in court (in the first instance) or answer by certified mail return receipt requested (in the second instance.)
• You have 2 basic defenses: Either you know the debt is not yours, in which case you ask them to prove otherwise; or if it is yours and it's past the statute of limitations, you tell them that it's no longer legally enforceable in your state.