Bankruptcy

Are Debtor?s Prisons Primed for a Comeback?

By Jonathan Ginsberg, Atlanta Bankruptcy Attorney

Debt collection attorneys know that you cannot be thrown in jail if you do not pay your credit card debts.  Debtor’s prisons were formally abolished in the United States in 1833, and, except for cases involving past due child support or tax debts, you will not face jail time if you are unwilling or unable to pay your bills.

Apparently, however, debt collectors in Minnesota may have found an exception to this general rule as debt collectors there have been successful in using imprisonment or just the threat of imprisonment as a debt collection technique.

According to the finance blog Walletpop, here’s how it works:

1. first, the debt collector files a legitimate lawsuit on a delinquent debt.
2. If the defendant consumer does not respond, the debt collector gets a default judgment.
3. Next the debt collector plaintiff  files post-judgment interrogatories and requests for production of documents asking the defendant to reveal detailed information about his assets and sources of income.
4. If the defendant does not respond to this post judgment discovery, the plaintiff requests a hearing before a state court judge where the defendant must appear to answer the discovery.
5. If the defendant does not appear at this hearing the plaintiff asks for an order of contempt of court and specifically incarceration, with the bail to get out of jail set at the amount of the judgment debt
6. When the defendant scrambles to raise bail money, those funds go to the plaintiff, who has in effect used the contempt power of the court system to collect its debt

This technique has been especially popular among debt buyers – those who purchase old debt for pennies on the dollar.  As reported elsewhere on this blog, there are many instances where the alleged debt is so-called “zombie debt” in which the statute of limitations for collections ran months or years previously, or it is debt that has been bought and sold so many times that there is no proof tying this debt to the defendant who was sued.

I have not seen this “jailed debtor” technique in Georgia where I practice, although I suspect that debt buyers and creditor lawyers will test the waters here and elsewhere throughout the country.  Note that the debt collection law procedures followed by the debt buyers are perfectly legal – they are relying on the tendency of stressed out and tapped out debtors to give up and ignore lawsuits.   As I point out on my Georgia bankruptcy law web site, the civil litigation process involves delays of weeks and months after a lawsuit has been filed.  It can be tempting to think that because you hear nothing that the problem has gone away – in reality nothing could be further from the truth.

If you receive a lawsuit, the default clock starts ticking and as we can see from what is going on in Minnesota, ignoring a lawsuit because you have no money is no answer at all.

Full post as published by Bankruptcy Law Network on September 09, 2010 (boomark / email).