Owe Money? Be Careful, or You Might End Up in Jail
Reports of mild-mannered Americans getting arrested for being in debt are starting to pop up in states across the country. All over the Net, we've been reading about these poor saps snatched off the street — right in front of their horrified children — by glowering cops and locked up just for missing a few credit card payments.
Right, but they're not. They can't. In this country, owing money is not a criminal offense. It is in Dubai, where nearly half of the prison population is behind bars for defaulting on bank loans. But in the United States, incarceration for debt was abolished in 1833, and now debt itself is a mere civil matter. Sure, collection agencies want you to think the FBI cares whether or not you pay that Nordstrom bill. But they risk losing their licenses for so much as implying this, thanks to the U.S. Fair Trade Commission's Fair Debt Collection Practices Act, in effect since 1966.
Read between the lines and you'll see that these debtors weren't arrested for being debtors but — in most cases — for missing court dates for negotiating their debts.
Incur debt and your creditor can call you, write you, hire a collection agency and finally sue you. At that point a subpoena, delivered via process server or registered mail, announces that you're now a defendant, your creditor a plaintiff. This subpoena lists a date and time at which you are ordered to appear before a judge in civil court "to disclose your assets and liabilities and determine how this defendant is going to pay this plaintiff," explains Will Lund, superintendent of Maine's Bureau of Consumer Credit Protection, which enforces the FDCA and licenses collection agencies.
"Attendance by the defendant is mandatory. To ensure that it's mandatory, a subpoena is involved. To not show up is not dissing the plaintiff. It's dissing the court," Lund says. "It's contempt of court, and that can lead to arrest."
Most debtors don't realize that ignoring the summons means crossing that line, exiting the stressful but safe realm of owing money and entering the stark realm of mugshots and body searches and jail-issued sandwiches eaten among robbers and arsonists. This transit happens when a judge signs a capias, a civil warrant for arrest on the basis of failure to appear in court.
"If you've got a capias against you for failure to appear, you could be arrested if you're stopped by the police," affirms Katherine Martell of Fairfax, Virginia-based K&M Law Group, which specializes in debt restructuring and debt recovery. "That's not the same as snatching people off the street for not paying debts."
The frequency of such arrests, and law-enforcement officers' eagerness to make them, vary from county to county and state to state, but given the severity of other crimes that cops have to deal with, this one is always low priority.
"It's not like a roundup where the police say, 'Hey, we're gonna go out and pick up all the debtors today," says attorney Marshall Meyers of Phoeniz, Arizona-based Weisberg & Meyers. "But if you get pulled over for a traffic ticket, say, and you've got a warrant for failure to appear in court, they can bring you in."
Such arrests shock arrestees and readers alike. Middle-aged patient-care advocate Joy Uhlmeyer's night in a Michigan holding cell was reported widely this week and spawned such headlines in the mainstream media as "A Return to Debtors' Prisons" and "In Jail for Being in Debt."
"The real story is that this is getting so much buzz while the coverage is so misleading," laments Maine's Lund, a lawyer himself. "These are unfortunate headlines because they blur the distinction in people's minds between civil and criminal matters." Lund admits that it's easy to jump to conclusions when the crucial missing link — that what started with a civil case led to a criminal act — is buried deep in stories and blog posts or omitted entirely.
Presenting an equivalent scenario, Lund imagines a speeding-ticket defendant "insulting the judge's ethnic background during a hearing. When that defendant gets arrested for contempt of court, would reporters write headlines saying that traffic violations land you in jail? You should not be afraid to go into court. No judge is going to make the consumer pay more than the consumer can afford to pay. Many debtors are on public assistance, and no judge wants to make impossible demands on them," Lund asserts. "It's quite common for judges to order installment payments of a certain amount every week, often a very small amount."
Filing for bankruptcy is another option.
That beats bunkbeds and barred windows. Nonetheless, ignoring a summons is seductively easy. It's made of paper, nearly weightless and so thin between the fingers that it wads quickly into a ball or folds into a little flat packet to be slipped behind a bookcase or stashed in a drawer. Oh, and it tears just like that. If no one's looking, it's as easy to discard as any junk mail.
This way, potentially, lies jail.
But by the time a subpoena arrives, the debtor has almost certainly already ignored the creditors' repeated previous attempts to make contact, much less to collect. Ducking these attempts becomes a lifestyle. Default itself becomes a default setting. We've all known at least one of these chronic avoiders: the wild-eyed, haunted creature whose creditors call several times a day, seven days a week, sometimes at 4am — but the phone is always off; those calls go directly to voicemail, where they stay.
That lifestyle — and those subpoenas — are growing ever more ubiquitous in a crashed economy, says Catherine Williams, vice president of financial literacy at the Chicago-based credit-counseling nonprofit Money Management International.
"Overuse of credit combines for a pretty toxic situation when other things start spinning out of control. Say three people at your workplace have been fired, so you're afraid of losing your job. Say an unexpected emergency comes up in which you need to use credit — but unfortunately you've already exhausted your resources.
"At the same time, you've been told ever since 9/11 that spending is patriotic, that you've got to travel and charge everything to support this economy, and that if you're not out there spending, you're not an American.
"There's a real lack of understanding of the credit system among the very consumers who use that system every day. These people aren't stupid or necessarily uneducated. They're creditworthy, which usually means that they have jobs," Williams says. "They just don't know about this subject."
Katherine Martell agrees.
"In this economy, the new debtor is a working person — usually one who earns way above the poverty level, sometimes as much as six figures. These are educated individuals. They aren't the sort of people you'd imagine as the stereotypical debtor. But the bills come and they say, 'I can't handle this,' so they ignore the calls and put aside whatever comes in the mail."
Fear is paralytic. And debt collectors are notoriously fearsome — which is why the FDCPA was created in the first place. One of Marshall Meyers' clients received a cell-phone message in which a debt collector warned her that if she didn't pay, he would cut off her ears and hang them around her neck. (In colonial America, bankruptcy laws allowed debtors to be nailed to pillories by their ears and to have those ears severed. Other punishments included branding and, of course, incarceration.)
"They say they're going to take away your disability payments. They'll say anything," Meyers sighs.
Martell agrees: "Those people are horrible. They're supposed to abide by the FDCPA, although these days I see more and more violations," as strapped creditors rely ever more on collection agencies, which lean ever harder on strapped debtors, who are struggling ever more futilely to make ends meet.
"People are getting these ridiculous harassing phone calls from collection agencies — calls that are full of lies and empty threats, and they don't know what their rights are. Fear does not improve the likelihood of debts actually getting collected, but it creates a lot of anxiety and potentially makes people avoid those calls and letters even more than they normally would."
Granted, outside the subpoena scenario, other debt-related situations can also lead to arrest. Nevada is unique in that failure to repay casino "markers" -- that is, zero-interest lines of credit offered to patrons -- is a felony that merits arrest and criminal prosecution. Even if you are not a Nevada resident and leave the state without having repaid your marker, you can be arrested elsewhere and extradited to Nevada to face prosecution. This law has led to numerous high-profile cases; for example, NFL player Ross Verba was arrested in Phoenix, Arizona last November after defaulting on debts owed to the Palms casino in Las Vegas. Former major-league pitcher Shawn Chacon was arrested in Greeley, Colorado last October after defaulting on debts incurred at Caesars Palace earlier that year.
Financial fraud, the deliberate use of funds not one's own, is a criminal offense, and you can be charged with financial fraud for bouncing checks or using someone's credit card — even a relative's, if they report you — without permission. A credit-card company can allege fraud when it has reason to believe that a cardholder has made charges which he or she never intended to repay. But because such acts are only crimes when committed with intent to defraud, charges in these cases are notoriously hard to prosecute, says Money Management International's Catherine Williams.
"It's very hard to prove that at the moment you wrote a bad check, you knew for certain that it was bad and that you didn't have the funds to cover it."
In China, conviction in such cases can carry a life sentence. Even what happened to Joy Uhlmeyer in Michigan is positively peachy compared to what befalls debtors in other countries to this day. A night in an American jail for keeping stuff you haven't paid for beats all the rest of your nights behind bars somewhere in remote Hunan Province, say, where prisoners are forced to weld toy cars in 10-hour shifts and aren't issued sweaters when it snows.