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It’s Not Debtor’s Prison, It’s Contempt Of Court

Several bloggers on the left, most notably Kevin Drum who calls it the return of Debtor’s Prison,  are giving play to a story that ran earlier this week about NPR about debtors who are finding themselves behind bars after not paying their bills:

Although debtors’ prisons are illegal across the country, it’s becoming increasingly common for people to serve jail time as a result of their debt.

Collection agencies are resorting to some unusually harsh tactics to force people to pay their unpaid debt, some of whom aren’t aware that lawsuits have been filed against them by creditors.

Take, for example, what happened to Robin Sanders in Illinois.

She was driving home when an officer pulled her over for having a loud muffler. But instead of sending her off with a warning, the officer arrested Sanders, and she was taken right to jail.

“That’s when I found out [that] I had a warrant for failure to appear in Macoupin County. And I didn’t know what it was about.”

Sanders owed $730 on a medical bill. She says she didn’t even know a collection agency had filed a lawsuit against her.

“They say they send out these court notices, and nobody gets them,” Sanders says.

She spent four days in jail waiting for her father to raise $500 for her bail. That money was then turned over to the collection agency.

Similar stories have been reported in Indiana, Tennessee and Washington.

Here’s how it happens: A company will often sell off its debt to a collection agency, generally called a creditor. That creditor files a lawsuit against the debtor requiring a court appearance. A notice to appear in court is supposed to be given to the debtor. If they fail to show up, a warrant is issued for their arrest.

Commercial and retail debt collection happens to be an area I have some experience in, having spending nearly ten years in the late 90s and early 2000s doing nearly nothing else here in Northern Virginia, so they first thing I’ll say is that, at least as far as this state is concerned, NPR has the description of the procedure of debt collection completely wrong. For one thing, collection agencies can’t sue anyone because they aren’t the owners of the debt, but merely agents of actual creditor, and since they’re not attorneys they can’t file anything on behalf of the actual creditor.

That’s just the beginning of where they get things wrong though. You don’t get thrown into jail for failing to show up in Court if you’re sued for, say, an unpaid credit card bill. The only thing that happens is that the creditor obtains a judgment for the amount of the debt against the debtor, and that’s assuming that they have the correct paperwork to prove the debt, which still must be done even if the debtor fails to show up. The number of times I’ve seen a claim based an old credit card debt rejected by a judge because the paperwork was incomplete might surprise those who thinks this process is stacked  against the debtor. After the judgment is obtained, it’s then up the creditor and its attorney to utilize the procedures allowed by the Court to attempt to collect on the Court. Typically, these include garnishments against bank accounts or salary and levies on personal property. Typically, though, you don’t have enough information to utilize any of those procedures when you first obtain a judgment so you have to try to bring a debtor into Court and find out information you can uRtse to collect a debt such as where they work (if they work) or where they have a bank account. Here in Virginia it’s called Debtor Interrogatories, but every state has a similar procedure as far as I’m aware.

In any case, this is where the issue of possible jail time comes into play. In order to bring someone into Court to answer questions, you have to serve them with a Summons. The summons, however, is actually a directive from the Court itself directing that person to appear at a specific date and time for the purpose of answering questions about their assets. Not surprisingly, people who don’t pay their debts are often also not very good about obeying a summons from Court. Disobeying a Court summons, though, is contempt of Court and sets in motion a procedure that not only re-summons the debtor to appear to answer questions but also to explain why they ignored the previous court summons. Someone who ignores repeated Summons’s, especially when they have been personally served upon them rather than just served by substituted service, are playing with fire. Eventually, the Court is likely to issue what Virginia calls a Capias and what most states call a Bench Warrant. This appears to be what happened to Ms. Sanders. People in her situation are not being jailed for failure to pay a debt, they are being jailed for failing to obey a lawful Court Order without providing a reasonable excuse.

That isn’t to say there are not abuses in the debt collection business. Collection agencies, which are typically not adequately supervised, are among the most egregious offenders but I’ve also seen cases where attorneys continue pursuing debtors even when its rather obvious that no good will come from it.  You can’t get blood from a stone, and you can’t collect a judgment from a Defendant that has no assets. At some point, you just have to advise your client that its time to give up and let the judgment lie for a few years to see if anything turns up. There are other abuses too, and those should be dealt with. However, to say that people who are willfully ignoring Court Orders are victims is to say that rules don’t matter at all, and that’s not how our system is supposed to work.

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About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May, 2010 and also writes at Below The Beltway. Follow Doug on Twitter | Facebook

Comments

  1. James says:

    Small correction. It is possible for a collection agency to purchase old debt from a company in order to try to collect it themselves. I worked for a while in the debt purchase division of a company that did just that.

    Like or Dislike: Thumb up 6 Thumb down 1

  2. Fair point, but then they still have to engage an attorney to go through the court system

    Like or Dislike: Thumb up 0 Thumb down 2

  3. James says:

    Of course they do, I was just pointing out that they can legally own the debt.

    Like or Dislike: Thumb up 2 Thumb down 0

  4. PD Shaw says:

    Living the county over from this story, I can largely confirm that Doug has this right. Pretty crappy NPR story. Its not unusual; unfortunately its happens every week that someone is arrested for not showing up in court, but at a minimum the debtor was given two opportunies. The debtor missed the required court appearance, and then missed a subsequent court appearance to explain why they should not be held in contempt.

    “They say they send out these court notices, and nobody gets them”

    They are called process-servers. If the case is small enough, the court clerk can send summons by certified or registered mail, return receipt requested on a restricted basis. I think its more common to use the process server instead of waiting for someont to sign for their mail. But either way, there should be a signature in the court file that calls her a liar.

    Like or Dislike: Thumb up 6 Thumb down 2

  5. Liberty60 says:

    First off, Doug, you are completely correct on the facts. I’ll give you that at the outset.

    But this is an example of the pints I am trying to make over at the League, which is that this is how Libertarians earn the reputation of being callous or even sociopathic.

    The broad principle of jailing people who ignore court orders is fine, but what you are overlooking is that the actual application of this is not evenhanded. The people who can’t pay debts are in most cases people who are ignorant of how the court system works, they have very few options to avoid debt, and are outnegotiated at every turn by credit companies and banks.

    So when yiou add it all up, it is less about people brazenly flouting the law, than rabbits being ensnared by a thicket of rules and procedures and regulations, none of which they had a hand in creating.

    Its especially ironic considering that the debt/ court/ collection industry is precisely the example of crony capitalism and captive government power that libertarians write about.

    The credit card rules are written by banks and card issuers; the debt collection laws are written by collectors; the entire mess is legislated by politicians beholden to them.

    Then people like you produly point to this obscentiy and declare indignantly that SOME people just don’t want to FOLLOW THE SYSTEM, and deserve what they get.

    But never mind all this- lets write about the crushing bootheel of oppression that the SEC brings to bear upon Goldman Sachs or the outrageous tyranny of barbering licenses.

    Like or Dislike: Thumb up 15 Thumb down 1

  6. @Liberty60:

    The terms of a credit card agreement have absolutely nothing to do with a persons willful and conscious decision to disobey a repeated Court Orders.

    Like or Dislike: Thumb up 3 Thumb down 8

  7. WR says:

    If you end Medicare, but then put some completely different and useless program in its place and CALL it Medicare, then you’re not ending Medicare.

    If a collection agency uses the court system to throw debtors in prison until they pay their debts but you don’t call it debtor’s prison then of course you don’t have debtor’s prisons.

    Sophisticated libertarian reasoning at its best.

    Odd that the dedicated Libertarian is entirely in favor of corporations using the power of the government to enforce their will on citizens while opposing any moves to make the same corporations subject to citizens.

    Like or Dislike: Thumb up 10 Thumb down 3

  8. @WR:

    If a collection agency uses the court system to throw debtors in prison until they pay their debts but you don’t call it debtor’s prison then of course you don’t have debtor’s prisons.

    And if you ignore reality in order to make it fit into your own partisan vision of how you think the world works, then you don’t have to pay attention to reality.

    Much like NPR’s reporter and Mr. Drum, you have no idea what you are talking about in this particular situation.

    Like or Dislike: Thumb up 3 Thumb down 13

  9. PD Shaw says:

    Part of the reason the NPR story is poor is its utterly irrelevant reference to collection agencies. What is the difference between the hospital suing to collect a debt, which unintentially results in the debtor being jailed, and the hospital selling the debt to a collection agency with the same result?

    The practical difference is that the large hospital has its own attorneys and sufficient financial buffer to do its own collection work. The smaller practices, particularly those with a lot of Medicaid clients, don’t have the resources.

    Like or Dislike: Thumb up 2 Thumb down 1

  10. PD Shaw says:

    One difference would be the debtor has additional legal protections from the collection agency under the federal Fair Debt Collection Practices Act and state laws.

    Like or Dislike: Thumb up 1 Thumb down 1

  11. @PD Shaw:

    Precisely. As I said, I know from personal experience that there are collection agencies that act in a less than proper manner to say the least, and some attorneys who don’t seem to know when to give up on what is an obviously uncollectable debt. But, that’s a different issue.

    NPR, and Drum, are deliberately confusing the facts here in order to create a false tale of modern “Debtor’s Prisons” that do not exist.

    Like or Dislike: Thumb up 0 Thumb down 3

  12. Steve V says:

    Did you read the Mike Konczal post that Drum links to? What are in personam remedies? I’m a lawyer and I’ve never heard the phrase before. Anyhow, it looks like people are being jailed not only for non-appearances but for things like failing to make payments on court-approved payment plans. You can say that’s just contempt, which it is, but it’s also being jailed for failing to pay debts. It’s both.

    Like or Dislike: Thumb up 5 Thumb down 0

  13. @Steve V:

    I can only assume that the In Personam remedies he refers to are the things I refer to in post, especially the ability to be able to bring a debtor into Court to discover their assets. As I read his post, it isn’t clear but it seems like he’s saying we should abolish those civil remedies but he never really makes his point clear. Of course, abolishing the ability to enforce a judgment would make said judgment even more worthless than many of them end up being anyway. I didn’t really consider his post a serious proposal to be honest.

    I’m not at all sure what he’s talking about when he talks about people being jailed for not making payments under a payment plan. That would certainly never happen here unless the payment plan in question was court-ordered restitution in a criminal case or child support — which are, of course, very different circumstances from what we’re talking about here — and I know for a fact that it doesn’t occur in the District of Columbia or Maryland either. Could it be permissible under the laws of other states? I don’t know but I’d be surprised.

    Like or Dislike: Thumb up 0 Thumb down 0

  14. PD Shaw says:

    I think the in personal / in rem distinction is of historic interest.

    In Lincoln’s day, the creditor would have the sheriff identify and seize the debtor’s property for auction. I believe Lincoln had this happen to him more than once. I believe his friends would buy back his stuff and Lincoln would eventually pay them back. I am guessing these auctions did not yield much since Lincoln owned no real property, but they were embarrassing and in a simple economy, reputation matters a lot. By continuing to honor his debt instead of going west and starting over, however, Lincoln enhanced his reputation.

    I think the in personam remedies are the ones that Doug mentions, though I think wage garnishments are a significant change. They take advantage of the ability to capture other income streams without a sheriff sale, probably made possible by Social Security. Once people’s wages are verifiable and employers already operate under regulations to capture and pay money to the government on behalf of the employee, the system can work efficiently for other purposes. Probably more efficient that repeated sheriff sales.

    Like or Dislike: Thumb up 3 Thumb down 0

  15. Steve Verdon says:

    But this is an example of the pints I am trying to make over at the League, which is that this is how Libertarians earn the reputation of being callous or even sociopathic.

    The broad principle of jailing people who ignore court orders is fine, but what you are overlooking is that the actual application of this is not evenhanded. The people who can’t pay debts are in most cases people who are ignorant of how the court system works, they have very few options to avoid debt, and are outnegotiated at every turn by credit companies and banks.

    So when yiou add it all up, it is less about people brazenly flouting the law, than rabbits being ensnared by a thicket of rules and procedures and regulations, none of which they had a hand in creating.

    Its especially ironic considering that the debt/ court/ collection industry is precisely the example of crony capitalism and captive government power that libertarians write about.

    So…the idea of jailing people for contempt of court is sociopathic behavior. Gotcha.

    Of course, showing up to court would avoid the jail time completely…lets ignore that or that one could be sent to jail for contempt of court for things other than debt collection.

    What is really amusing is that even if Liberty60 had his way and we leveled the playing field and made things more fair (i.e. addressed the crony capitalism\regulatory capture problem) he’d clearly still advocate jailing people for contempt of court…but he isn’t a sociopath. That term is reserved for those he disagrees with.

    Like or Dislike: Thumb up 2 Thumb down 2

  16. PD Shaw says:

    I doubt that in Illinois you can be jailed for not making a payment on a payment plan. The quid pro quo on a court-approved payment plan is that so long as the debtor is making payments, the creditor is prohibitted from any other collection activities; the debtor cannot be harrassed by repeated court dates. If the debtor cannot make the payments he/she is expected to contact the creditor to try to make new arrangements and/or write a letter to the court, explaining that reduced payments or a temporary reprieve is in order. There will be a hearing on it. I realize that this may be more than one can expect from a debtor. I’ll assume that doesn’t happen in reality.

    In reality, the debtor is over his/her head and stops paying and hides. The creditor files a motion for contempt and . . . the debtor does not show up. A body attachment may issue at that time or the court may demand a second hearing to decide whether to issue the body attachment. Either way the debtor did not show up.

    If the debtor shows up, could the court order the arrest of the debtor for breaking the payment order? I can’t imagine it. Only if the debtor was contemptuous to the judge or the process would that seem remotely possible. More likely, the judge will encourage a new payment order or direct the creditor to use the other collection measures that were stayed while the payment plan was honored.

    Like or Dislike: Thumb up 1 Thumb down 0

  17. mantis says:

    it’s becoming increasingly common for people to serve jail time as a result of their debt.

    Pretty poor reporting, NPR. Saying someone jailed for contempt of court is there “as a result of their debt” is not inaccurate, but it’s about as precise as my saying after buying a gun and later shooting someone with it that I’m being imprisoned as a result of my shopping habits.

    @Liberty60:

    The broad principle of jailing people who ignore court orders is fine

    You could have just stopped there.

    but what you are overlooking is that the actual application of this is not evenhanded. The people who can’t pay debts are in most cases people who are ignorant of how the court system works, they have very few options to avoid debt, and are outnegotiated at every turn by credit companies and banks.

    That’s not an imbalance in application. What you’re saying is that people who have the money to pay back debts and are not ignorant of the how the court system works will be able to pay their bills and show up when summoned to court. They aren’t getting away with breaking the law, as you imply. They are not breaking it. And ignorance of the court system is not an excuse for not opening your mail and reading it.

    Debt isn’t the crime here. If it were, people who showed up to court when required would also be going to jail because they don’t pay their bills. They aren’t.

    Like or Dislike: Thumb up 1 Thumb down 0

  18. Liberty60 says:

    @Steve Verdon: @mantis:

    What you literally are not understanding is why people don’t show up for court hearings, like you and Doug would do.

    Most of the people we are talking about are in fact ignorant of how these things work. In most people’s minds, if you haven’t committed a crime, you have no reason to be getting a court summons. The fact that you fell behind on your cell phone bill 3 years ago never crosses peoples minds.

    Are you correct on the facts? Yes, I said so at the outset.

    Is there an unfair system here, that erects a confusing and Kafkaesque system that is only accessible to lawyers and accountants? Absolutely.

    Every so often I hear about a businessman who is shut down for building code violations- and promptly hear indignant howls from libertarians. Of course, as an architect, I usually undestand exactly what code section they violated and understand perfectly well how they could have easily avoided it. (Rand Paul’s famous example of having to add an elevator to his building comes to mind).

    EPA fines, IRS seizures, DEA property seizures….in all those cases its the rabbit being caught in a snare.
    In those cases we are supposed to be enraged- (Rush Limbaugh actually called the EPA “Jackbooted thugs” back in the 90′s when they busted some poor farmer)

    But when its poor people getting mangled in the gears of a system they don’t understand, we are supposed to be indifferent.

    Like or Dislike: Thumb up 5 Thumb down 0

  19. WR says:

    @Doug Mataconis: Is the NPR reporter lying with this statement?

    “She spent four days in jail waiting for her father to raise $500 for her bail. That money was then turned over to the collection agency.”

    So the state will only release her from jail on payment of bail, and then the state hands that money over to the collection agency.

    The collection agency is now using the court system as an arm of its business.

    Yes, Doug, I understand that you worked for a collection agency. And I realize that your libertarian philosophy leads you to despise anyone who isn’t, well, you. But your experience doesn’t contradict what this report says — it merely says that ten years ago when you were in the business it didn’t work this way.

    Like or Dislike: Thumb up 9 Thumb down 0

  20. WR says:

    @Liberty60: We are supposed to be indifferent because poor people deserve to be poor, because they are inherently lesser human beings — which we know because they’re poor.

    Scratch a Libertarian and you find a Calvinist. They both believe that they are uniquely deserving of life, liberty and happiness. The only difference is that the Calvinist believes he’s been selected by God and the Libertarian believes he is God.

    Like or Dislike: Thumb up 6 Thumb down 1

  21. Ben Wolf says:

    Steven Lipman had fallen on hard times… Steven received a pension income of $525 per month… One creditor who obtained a judgment against Steven served him personally with notice of an in personam debt collection action…

    After about a 20-minute wait, the creditor’s attorney called out Steven’s name and guided him into the hallway outside the courtroom, where five other debtors’ examinations were taking place. The creditor’s attorney asked Steven about what property he owned and the location of his bank account. Eventually, the attorney asked Steven how much money he could afford to pay each month. Steven felt flustered and wasn’t sure what to say. Feeling embarrassed about having defaulted in the first place, Steven agreed that he could pay $80 per month until the debt was paid off. Steven, unfortunately, couldn’t pay $80 per month…

    [H]e hadn’t noticed that it included examples of exempt property — various assets insulated from creditors’ collection efforts. The list included pension income, Social Security payments, a certain percentage of wage payments, veterans’ benefits, unemployment compensation, workers’ compensation, alimony and child support, and some personal property. Had Steven asserted his exemptions, he would not have had to forfeit any of his money or property.

    The creditor’s attorney didn’t tell him about the exemptions, and the judge never raised the issue. (Unless debtors affirmatively assert their exemption rights, judges may feel uncomfortable raising the topic. Otherwise, judges may be perceived as serving as debtors’ advocates — not as disinterested adjudicators.)

    http://rortybomb.wordpress.com/2011/12/14/reinventing-debtors-prisons-for-the-21st-century/

    Sure sounds to me like the deck is stacked against those ignorant of their rights.

    Like or Dislike: Thumb up 8 Thumb down 0

  22. @Ben Wolf:

    That hypothetical is so full of strawmen it isn’t even funny. Obviously whoever wrote it has no understanding of the law.

    Like or Dislike: Thumb up 0 Thumb down 2

  23. @WR:

    (1) If she had appeared in response to the court summonses she would not have been arrested.

    (2) The bail was set because she was guilty of not responding to a court summons

    (3) I didn’t work for collection agencies, I am an attorney who represented creditors who were owed just and proper debts, none of whom had sold those debts to third parties. Which I know in your eyes makes me worse than Satan, but I can live with at.

    Like or Dislike: Thumb up 1 Thumb down 0

  24. Ben Wolf says:

    @Doug Mataconis: So you’re saying that Lipman was informed of the exemptions? It doesn’t sound like a hypothetical.

    Like or Dislike: Thumb up 4 Thumb down 0

  25. mantis says:

    That hypothetical is so full of strawmen it isn’t even funny. Obviously whoever wrote it has no understanding of the law.

    Hmm. Following the links to the source.

    Lea Shepard
    Assistant Professor, Loyola University Chicago School of Law.
    J.D., Harvard Law School; A.B., Duke University.

    Meh. Harvard. Diploma mill.

    Like or Dislike: Thumb up 4 Thumb down 1

  26. anjin-san says:

    Which I know in your eyes makes me worse than Satan

    I’m afraid no one takes you nearly that seriously. At best, you are a minor minion of Beelzebub…

    Like or Dislike: Thumb up 6 Thumb down 0

  27. Console says:

    @Doug Mataconis:

    You’re a lawyer, dude. You were already Satan. Now you’re like Cthulhu or something.

    Like or Dislike: Thumb up 3 Thumb down 0

  28. Xenos says:

    Anyone here even slightly familiar with the phenomenon of abuse of process?

    I have done collections, as an attorney. I have had summons sent out for service, only to have it turn out that the sherrif’s office served the wrong house, and did not even hand it to anyone, just left the summons at the ‘last and usual address’, which turned out to be an abandoned house next door.

    If I had been unethical, I could easily have gotten a capias issued and had someone put in jail. The lack of notice could have been his problem, not mine.

    This also can happen with small claims cases, served with certified mail. Wrong address, or former address, someone with limited english signs the little green card, no actual notice, capias issued resulting in hundreds of dollars of costs and lost work, lost liberty, over flawed or absent notice.

    How a collections attorney can be so blithely unaware of these issues is, frankly, astonishing. Do you have no sense of responsibility to the public?

    Like or Dislike: Thumb up 7 Thumb down 0