Private Creditors Can Put You in Jail

The American Conservative – by Michael Shindler

The United States is a nation rife with indebtedness: student loans, credit card balances, unpaid medical bills, and hefty mortgages are all familiar features of American life. During certain points in history, people faced the prospect of incarceration when they could not honor their private debts. In America, the Supreme Court judged this grim practice unconstitutional in 1983—yet even today, many Americans are threatened with jail time or even sent to prison at the behest of creditors hungry for payment.  

In the renowned Twelve Tables, which formed the foundation of the Roman Republic’s legal system, the only explicit mention of imprisonment occurs within the laws regarding debt. The law required that debtors who couldn’t—or wouldn’t—pay what they owed be enchained for 60 days. If their debt was paid, they were released. The basic structure of this policy endured throughout the lifetime of Rome and its successor states in the West into the modern era, when the practice spread to the United States.

In the early days of the United States, debtors’ prisons operated by states and cities could be found wherever a sizable population of indigent debtors lived. These prisons were modeled on their Dickensian cousins in London and were a familiar sight to both the poor and powerful—at least two signatories to the Declaration of Independence, James Wilson and Robert Morris, spent time incarcerated in such institutions. However, lawmakers and courts eventually put an end to the practice.

In 1833, the imprisonment of debtors was removed from federal law, leaving the practice to states. In 1983, the Supreme Court affirmed that incarcerating indigent debtors was unconstitutional, pursuant to the Equal Protection Clause of the Fourteenth Amendment, which prohibits judges from revoking probation for a failure to pay a fine without first ascertaining a person’s ability to pay. Yet, according to a new report, “A Pound of Flesh: The Criminalization of Private Debt,” published by the American Civil Liberties Union (ACLU), indebted Americans are still imprisoned at the instigation of private creditors through a perverse contortion of the legal process.

Creditors regularly hire debt collectors to harangue their debtors, or sell debts to collection companies at steep discounts. These collectors then bring lawsuits to a variety of small claims and state courts, often without bothering to confirm that the debts in question are actually owed or qualify for such a lawsuit. Once a collection company has won a judgment (and they usually do) these companies normally ask the court to require that defendants attend proceedings often called “judgment debtor examinations,” which technically allow collection companies an opportunity to inquire about debtors’ financial details.

However, debtors are often unaware about these proceedings because, according to the ACLU’s report, creditors and collectors either fail to notify debtors, or because debtors are unable to be present for reasons including sickness, age, and an inability to take time off from their jobs. When debtors predictably fail to show up, judges issue arrest warrants.

Once arrested, debtors often languish in prison for days (and occasionally for weeks) until they can make bail. According to the ACLU report, it’s common for judges to set bail equal to the amount of the judgment, and then transfer the money to the debt collector. Outrageously, the sum of these judgments often exceed (sometimes by twice the original amount) the sum of money originally owed and include various fees added by collection companies. Oftentimes, a portion of these fees are wired to district attorneys’ offices that have contracts with collection companies that allow them to use a district attorney’s letterhead on vicious letters sent to debtors unaware that such letters come from private companies. Likewise, the mechanics of this process seem designed to bewilder people into payment.

Whereas indigent defendants have a Sixth Amendment right to a court-appointed lawyer in criminal cases involving incarceration, indigent debtors in state and local courts have no one to defend them against the error and abuse that characterizes debt collection litigation. According to the ACLU’s report, “some small-claims court judges, justices of the peace, clerk-magistrates, district court civil judges, and court clerks exceed their authority by threatening debtors with jail for contempt of court if they do not pay in full or agree to payment plans.”

Jennifer Turner, the report’s author, explained to TAC that the reason these officials engage in this sort of excessive behavior is often due to ignorance. While conducting her research, she found that occasionally, officials exceed their authority because “they do not know the law” and observed that many judges “didn’t understand that it was illegal to jail someone for failure to pay” in cases where it was clear that the debtor in question didn’t have the means to honor their debt. Turner also noted that in some cases, the officials facilitating these arrests are “judges in low level courts who aren’t necessarily lawyers.” But even in cases where officials don’t exceed the letter of the law, the process has a similar functional outcome.

Essentially, people are incarcerated until they can make bail, and that bail is used to pay their debtors. The mechanism of using “contempt proceedings” to imprison debtors effectively lets courts circumvent laws which expressly forbid the jailing of indigent debtors.

This perverse process exists only because the vast majority of states have laws that permit judges to arrest debtors for contempt. Public records indicate that tens of thousands of these warrants are issued annually, but according to the ACLU’s report, that number may be far higher because “states and local courts do not typically track these orders as a category of arrest warrants.”According to Turner, this problematic “lack of tracking” makes an accurate estimation of the number of Americans annually affected by these laws difficult, and obscures the likely severity of the issue.

However, even without knowing the exact number of Americans affected, it’s likely that it will only continue to grow. Currently, Americans typically owe more than 26 percent of their income to consumer debts, which is up from 22 percent in 2010, and which will likely increase.

That the imprisonment of indigent debtors has persisted in a convoluted fashion despite its apparent illegality is notable. Certainly, there are arguments to be made in the practice’s favor—namely that it helps creditors get what is rightfully owed to them. However, the problem is and has always been that many indigent debtors don’t have the means to pay, regardless of whether their physical liberty is at stake. Indeed, in one of W. Somerset Maugham’s novels, an astute debtor asks, “Can the law get blood out of a stone?” In Rome, where indigent debtors were sold into slavery or executed, the answer was unequivocally “yes,” but in the United States, we are not quite so draconian. Perhaps we recognize that in a capitalist economy, many people necessarily and periodically find themselves without the means to honor loans they had taken out in good faith.

Capitalism thrives on creative destruction, a force that the Austrian political economist Joseph Schumpeter says “incessantly revolutionizes the economic structure from within, incessantly destroying the old one” and creating, as Karl Marx aptly put it, “momentaneous suspension of labour.” Since 78 percent of American workers live paycheck to paycheck, it would be foolish to orient policy around the expectation that money can be reliably generated from jailing such workers, especially since imprisonment deprives them of their capacity to earn. But debtors’ prisons aren’t just unreasonable, they’re antithetical to America’s ethos.

Abraham Lincoln described America as a “nation conceived in Liberty” and our capitalist system is a consequence of that devotion to liberty: we are not free in order to engage in trade, rather we engage in trade because we are free to do so. Thus, imprisonment is only justifiable in relation to the preservation of liberty: we could sanction imprisonment for the sake of deterrence and punishment, but never for the sake of profit.

The initial legislative and judicial attempts to put an end to debtors’ prisons were noble, but evidently unsuccessful. State legislatures should enact laws that prohibit courts from issuing arrest warrants in debt collection proceedings and vigilantly take care to ensure that debt collectors never connive some new way to twist the arm of the law away from liberty.

Michael Shinder is a Young Voices contributor and research fellow at the Consumer Choice Center. His work has appeared in publications including The American Spectator, The American Conservative, National Review Online, and Washington Examiner. Follow him on Twitter: @MichaelShindler.

The American Conservative