Commercial Collections Blog

Debtors Go to Jail for Unpaid Debts?

Debtors Go to Jail for Unpaid Debts?

 

In the U.S., debt is, unfortunately, a natural state of existence for most people. Collectively, Americans now have over $1 Trillion (with a T) in revolving debt, which is usually considered credit card debt. The country itself is also on a bit of a debt binge, with the latest numbers putting the US at about 18 Trillion dollars in the hole.

With so much debt being accrued, it makes sense that there would be a lot of laws surrounding the subject. Today though, we are going to discuss the issue of going to prison for unpaid debt. We’re going to look at if it can happen, how it can happen, and why it happens. If you have a lot of debt to pay off, then you will want to read this.

Different Types of Debt

If you’re reading this and biting your nails because you have some unpaid debt, you should know that not all outstanding balances can lead to jail time. For the most part, things like credit cards and medical bills are not jail-worthy offenses, so if that’s the case for you then don’t worry too much. That being said, you should always pay your debts on time and in full, but if you are running late, then you probably won’t be hauled off to prison.

Consumer Debt

This kind of debt is covered by the Fair Debt Collection Practices Act, and it includes things like utility bills, credit cards, student loans, medical bills, and payday loans. Essentially, if you owe money to a business as a consumer, then it will most likely fall into this category. According to the law, this debt has to be primarily for personal, family, or household purposes.

Non-Transactional Debt

Non-Transactional Debt is the kind of debt that you should be worried. This comes in the form of taxes, court fees, and other fines that you may get from the government. Child support and alimony can also be included in this category. If you are late paying this kind of debt, then the court may issue a warrant for your arrest and put you in jail unless you pay.

Terms to Know

When talking about debt, there are two primary people involved in the process. The first is the debtor, who is the person owing the money. The second is a creditor, who is trying to collect the debt. While most of the time you will be dealing with a creditor directly, you may sometimes be contacted by a debt collector.

Debt Collectors

You may or may not be familiar with debt collectors depending on your situation. For the most part, these are private third-party entities who attempt to collect your debt on the creditor’s behalf. In some cases, however, these parties may have bought your debt from the original creditor and are trying to collect it for themselves.

The way that this works is that the creditor essentially cuts their losses on trying to make you pay the debt back, and sells it to one of these companies. Then your debt becomes their responsibility, although they are still held to standards based on the Fair Debt Collection Practices Act. This law dictates how often they can call you, as well as what methods they can use to try and collect payment.

Can I Go to Jail for Consumer Debt?

Under the FDCPA, you cannot be arrested and incarcerated for failure to pay any consumer debt. However, there is a growing number of states that are allowing debt collectors to skirt around this law by taking you to court and then making it a legal matter.

So far, Ohio, Michigan, Colorado, Mississippi, Washington, New Hampshire, Georgia, and Louisiana allow this practice to continue, but other states may or may not adopt this strategy.

The way it works is that a debt collector will send you a notice to appear in court relating to your debt. If you fail to show up, then the judge can hold you in contempt, and issue a warrant for your arrest. Technically, this is allowed because your actions were related to the court appearance, not the debt. However, what usually winds up happening is that you have to pay the full amount to avoid jail time, so it essentially works the same as a debtor’s prison.

What is a Debtor’s Prison?

Back in the old days, if a person owed a debt to anyone, he or she could be arrested and thrown in jail. These were not the same as a regular prison in that they were only reserved for people in debt, rather than other criminals such as murderers and thieves. Those incarcerated in this places would stay until they worked off their debt and were then set free.

Back in 1850, the US abolished this practice, but it’s clear that the same kinds of methods are being used today by debt collectors. Mostly, they are bringing back the “pay or stay” way of dealing with those who default on a debt, despite the fact that in most cases, it violates a person’s civil rights.

The Bottom Line

Overall, if you owe consumer debt, then you shouldn’t have to worry too much about going to jail. If you live in one of the states above, however, then pay attention to any notice that comes in the mail from a debt collector. Usually, they will try to hide any notice of a court appearance in their documents, so you have to be careful to read the fine print.

Unfortunately, if you are held in contempt of court, or you owe a debt that is not covered by the Fair Debt Collection Practices Act, you may have to worry about jail time. If that is the case, then try and consult with debt forgiveness or consolidation firm so that you can manage it effectively and avoid such punitive measures.

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