The Return of Debtor's Prison

Most people think of debtor's prison as a thing of the past in this country. In fact, at a federal level, the United States abolished imprisonment for unpaid debts in 1833. Many states ended the practice around the same time, and by the 1850s most state constitutions had clauses prohibiting the jailing of people for debts. Some legal scholars would even argue that there is no such thing as imprisonment for debt here now. But is that really true? Let's take a look...

It is now generally considered unconstitutional in the United States to jail someone for not paying a debt, yet six states (Arkansas, Arizona, Illinois, Indiana, Minnesota, and Washington State) allow creditors to seek arrest warrants for debtors in default when other methods have failed. To avoid the constitutional issues, the charge facing these debtors is technically contempt of court. But if a man or woman is jailed for not paying debts, and the price of freedom is conveniently the same amount as the debt (read further for an explanation of that), doesn't that sound a lot like a debtor's prison?

In fact, although perhaps not by intention, this method of collection really has brought back imprisonment for debt. I have a friend who once spent time in jail for not paying a couple dollars in library fines for a late book return.

What has really changed in recent years, though, is that credit card companies and other creditors, rather than simply charging off bad debts as they used to do after six months or so of non-payment, now sell them. There are companies that buy these debts for pennies on the dollar ($110 billion in face value in one recent year). Buyers get little information beyond names, addresses, account numbers and balances, but this is enough to file a lawsuit for collection.

Many debtors don't even know they are being sued, because they have moved and so never receive court papers. In fact, if you are sued because your name is similar to a debtor, and a default judgment is issued because you never got served papers and so never showed in court, you are legally obligated to pay the debt. When the judgment is issued, a debtor is supposed to complete a financial disclosure form to help the creditor collect, if this too is sent to an old address - as they often are - the creditor obtains an order compelling the debtor to show up in court to explain why the form wasn't completed. This will usually be sent to the same address that didn't work the first or second time, and when the debtor doesn't appear in court, he or she is held in contempt and an arrest warrant is issued.

Debtors are sometimes "substitute served" at an old address. that means the server or processor knocks on the door, and after the occupant says he has never heard of the debtor, the papers are dropped at the doorstep anyhow. The papers are then considered served.

Reason magazine, in their November 2010 issue, reported on a case in which a man in Illinois was sententenced to "indefinite incarceration" until he paid a $300 debt owed to a lumber yard. The Star Tribune reported that the use of arrest warrants against debtors went up 60% in four years, with more than 845 issued in 2009 in Minnesota alone. Although the official charge is contempt of court (who wouldn't have contempt for courts that operate in this way?), the bail is often set at exactly what is owed and goes to the creditor. Again, this sounds suspiciously like debtor's prison.

Americas largest companies and the people who run them get out of paying debts without a problem. They even get billions handed to them by government to help them out. Meanwhile, individuals who do not have such clout can once again go to jail for something as simple as owing $80 on a credit card. The beneficiaries of this new system are some of the largest companies around. Once again big businesses have found a way to get government to do their bidding in our system of crony-capitalism.

Note: I am generally a beliver in free markets at heart, but what we have is not a system of free markets or fair trade. It is in no sense laissez-faire capitalism. We have developed a system where money buys access to law makers and so makes the laws, and the return of debtor's prisons is just one of the results.

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