Jail for Those Unable to Meet Financial Obligations?

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Jail for Those Unable to Meet Financial Obligations

Source: Business Insider, Postmedia News

It’s true – there is such a thing as “debtors prison” and while most Americans will never be sentenced to jail for an inability to pay bills, there are companies that are pushing for a shift and that could mean consumers are shifted from their homes to their county’s jail.

There also exists the possibility that, even if it’s not used often, it could soon be a threat of choice by shady creditors. The Wall Street Journal recently published an investigative piece about states using loopholes in their laws to put folks behind bars. Missouri, Illinois, Alabama and several other states have laws that are detrimental to consumers. Interestingly, there are many creditors – including payday loan companies, credit card companies and even health care providers – who are taking advantage of these vulnerabilities in the law. What’s most disturbing is these companies, in some states, are using the court system as bill collectors.

Using Missouri as an example, it’s illegal to put someone in jail over unpaid financial obligations; however, these controversial payday loan companies have managed to bypass this minor detail. The companies file civil suits against customers who have defaulted on these high interest loans, which is easy to secure a judgment in their favor if they have maintained proper paperwork. Once the ruling goes in their favor, they then request the courts to force those debtors to appear in court with all of their financial records.

Unfortunately, most do not show up after being summoned, which puts them in contempt. The loan company can then ask the judge to issue a body attachment, which is little more than an arrest warrant. The judge orders it and then sets bail for the amount the debtor owes the creditor. If they can’t make bail, they sit in jail. If the debtor makes bail, the courts turn it over to the creditor. It’s essentially turning the court system in Missouri into a glorified collections agency. There’s the problem: the courts and law enforcement, paid for with taxpayer money soon begin running down those taxpayers the way all private debt collectors do.

Naturally, there’s been public outcry – and for good reason. At least one state is now in the process of passing a law that would

… protect vulnerable consumers from being hauled to jail over unpaid debts.

The Debtors’ Rights Act of 2012, as it’s called in Illinois, mandates at least two notices be served on the taxpayer/debtor before an arrest can even be considered. Not only that, but it also prohibits creditors from requesting multiple examinations, especially considering it borders on harassment. Some are saying it’s not near enough and that this country’s not built on sending those struggling with finances to jail.

Even those who live on money that’s protected from garnishments or court rulings aren’t immune to these controversial policies. In one case, this one in Chicago, an ultimatum was given to a mentally disabled man who received disability payments of about $700; funds that are protected from the so called “pay or appear” orders. Even after explaining his situation to a judge, he was still ordered to pay $100 a month to the company. Illinois’ Attorney General Lisa Madigan has attacked the revival of the ‘debtors’ prisons’. ‘Too many people have been thrown in jail simply because they’re too poor to pay their debts,’ Madigan said. ‘We cannot allow these illegal abuses to continue.’

Regardless of what anyone refers to it as, the truth is there aren’t enough jails in the country to house those who are behind in their financial obligations.

“It is outrageous to think in this day and age that creditors are manipulating the courts, even threatening jail time, to extract whatever they could from people who could least afford to pay,” said one consumer advocate.

This law corrects that gross oversight and puts a stop to throwing people in jail for being poor while still allowing fair debt collection when people have the means to pay their debts.

This disturbing new trend not only won’t lose its appeal, but will likely flourish as the tough economy continues to cause problems for millions of American families. Worse, one third of states in the U.S. have these laws on their books, even if they’re never used. It could be the payday loan, credit card and medical sectors will set an example for other creditors to follow. This is no good for anyone, including the creditors. If their borrowers are in jail, the companies will receive nothing.

What are your thoughts? Know anyone who would be at risk of finding themselves in debtor’s prison? Let us know your opinions. Visit our Facebook page and be sure to follow us on Twitter, too.

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About Author

David is a CPA and has spent the past decade as a financial adviser helping clients meet their fiscal objectives. With an appreciation for journalism, he has spent the past few years overseeing several financial columns as well as writing two previous finance blogs. He resides on the East Coast with his wife and two sons and has guided many through the recent recession while providing a no-nonsense approach to spending and saving.


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