| March 14, 2016

Can You be Arrested for Credit Card Debt?

Debt collectors are finding ways to send you to jail despite the FDCPA.

Debtors’ prison is not supposed to be something you have to worry about in the United States these days. The practice of sending people to jail over unpaid debts was abolished in the U.S. over two centuries ago. So while you can be sued over an unpaid debt in civil court, there shouldn’t be any reason you end up in criminal court over any kind of debt… except possibly debts owed to a state government in the form of criminal court fees.

Unfortunately, it seems like debt collectors are finding ways to get around these restrictions. As a result, a man in Houston, Texas was arrested by U.S. Marshals over an unpaid $1,500 bill for a student loan debt that he’d taken out over thirty years ago.  What’s more, a new report from NerdWallet seems to indicate this isn’t an isolated incident. It could potentially happen with any debt, including one incurred with a credit card.

 

From NerdWallet…

Private law firms have figured out how to get the courts in many states to turn what should be civil cases into criminal ones. In recent years, collectors have transformed unpaid credit card debt and medical bills into arrest warrants for people who sometimes weren’t even aware they were being sued.

The practice is definitely underhanded, but is it illegal?

Again, keep in mind that debtors’ prison is supposed to be abolished in the U.S. back in the 1800s and under the Fair Debt Collection Practices Act (FDCPA) even the mere act of a collector threatening you with jail time is supposed to be against the law. That’s right, just for saying you could go to jail over a debt a collector is supposed to be open to face a civil suit where you could receive a cash compensation for being threatened.

So what gives?

Basically, debt collectors have found ways – at least in certain states – to exploit a loophole in the system so people can potentially get arrested over a debt. Here’s how it works:

  1. You have an unpaid debt that the original creditor charges off and sells to a third-party debt collector.
  2. That collector attempts to collect but you either dodge them or simply don’t pay because you don’t have the funds to do so.
  3. As a result, the collector files a civil suit against you in your state’s court system.
  4. In many cases, you may not even know you’re being sued, but in any case you fail to appear at the hearing – something that according to NerdWallet’s report happens about 90% of the time
  5. A default judgment is entered against you.
  6. That order can then be used to obtain wage garnishment and bank liens by the collector to get you to pay
  7. However in about one third of the states in the U.S. the collector can also use that judgement to get arrest warrants for failing to comply with a court order.

Sneaky, sneaky collectors. And it gets worse, because they often use tactics like “sewer service” which refers to the practice of figuratively or literally throwing collection notices and court summons into the sewer instead of serving the debtor as required by law.

“If disreputable debt collectors are going to use tricks like this to turn civil matters into criminal, then the laws need to be amended to close loopholes that can put hardworking families at risk of jail time,” says Gary Herman, President of Consolidated Credit. “Without a doubt, people should make every effort to pay what they owe, but if you lose your job and can’t pay back a debt, you shouldn’t have to fear being put in jail alongside hardened criminals.”

Take action to protect yourself now

Hopefully the laws will be changed to close these loopholes and make it impossible for a debt collector to have you jailed over a debt – it’s what the original intent of the FDCPA was and it should be fixed so it does what it intended to do in the first place.

Unfortunately, even if lawmakers decide to amend the FDCPA or create a new law that closes the loophole, it could be several years off before it would take effect. In the meantime, this practice can continue until it’s outlawed.

“If you have an unpaid debt, you can’t just ignore it because now, depending on where you live, you might have a warrant issued for your arrest as a result,” Herman explains. “So even if you can’t pay the debt back, you need to do something – even if that something is filing for bankruptcy. After all, bankruptcy is definitely not the worst thing that can happen in a world where you could be confronted by U.S. Marshals over an unpaid debt.”

If you have a debt or several debts in collections, you need to take action to ensure you avoid whatever may befall you know as a result. Here is what you can do:

  1. Make sure the debt is actually yours. Debt collectors are notorious for pegging the wrong person as the debtor who owes the balance they’re trying to collect. Also make sure the debt amount is correct.
  2. If it’s not yours, give them notice top stop contacting you. By law in the FDCPA, you can inform the collector that the debt they’re owed is not yours and you no longer wish to be contacted. Note the date and time of any phone conversations. You may also want to send a registered letter so you have proof that you notified them in case you need to prove it in court later.
  3. If it is your debt to pay, explore relief options. For credit card debt, even if a debt is in collections you can still go through credit counseling to see if it can be included in a debt management program. In fact, even if you’re being sued already, consolidation may still work for you. Note that a debt management program has been shown to reduce qualifying debtor’s total monthly payments by 30-50 percent. For federal student loan debt, hardship programs for student loan debt consolidation can lower your payments to 10 percent of your income and if you’re below the Federal Poverty Line for your state, you may not have to pay anything until you have the income to do so.
  4. If all else fails, file for bankruptcy. Particularly for things like medical debt and credit card debt, filing for bankruptcy allows the courts to either arrange a repayment schedule you can afford or discharge remaining balances if you’re completely without means to pay what you owe. Filing means you go to court on your terms instead of the collector’s terms and once you have the court order you’d be protected from further legal action relating to the same debt. Even with a full-discharge bankruptcy in Chapter 7, the worst thing you’ll have to face is a ten-year negative remark on your credit – much better than jail time.

One potential downside is that federal student loans and even private student loans can’t be discharged during bankruptcy. However, discharged other debts may give you the means to be able to make the payments on your student loans so you can regain control. Otherwise, again, your best option may be federal loan consolidation – especially if you’re out of work completely or have limited income.   

If you have questions or you need help determining what your best path out of debt really is in your unique financial situation, we can help. Call Consolidated Credit today at or complete an online application to request a debt and budget analysis from a certified credit counselor. There’s no charge for the consultation so you won’t incur another bill that has to be paid back for getting the one-on-one advice you really need.

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