As we talked about in the first installment of this blog post, debtors use the court system to collect, bending the legal process past its intended spirit in some cases.
When a debtor’s examination is requested and a defendant/debtor doesn’t appear for any reason, they can be found in contempt of court. At that point, a warrant can be issued for their arrest and they can be incarcerated, placed behind bars technically for contempt of court – not failing to pay the debt. Not so coincidentally, the bond you have to pay to be released is usually the exact amount you owed to the debtor, or the amount of the original judgment (which could include late fees, legal costs, etc.) Issuing court costs and fines in the amount of the original debt, and then instigating the legal process for failure to pay, is another questionable tactic being used to collect debts.
In this way, the court system has become a vicious, obedient hunting dog for debt collectors.
“The law enforcement system has unwittingly become a tool of the debt collectors,” said attorney Michael Kinkley, who represents arrested debtors. “The debt collectors are abusing the system and intimidating people, and law enforcement is going along with it.”
Remember that whether or not a debtor’s examination is requested, a contempt of court ruling issued, an arrest warrant disbursed, or the debtor is arrested and placed behind bars, the mere threat of this happens created an avenue for collection agencies and debtors’ attorneys to threaten consumers – scaring many debtors into paying up without really understanding the process, the law, or their rights.
For instance, most consumers aren’t aware that the U.S. Supreme Court has banned the use of prison to punish indigent (those who can’t pay) criminal defendants who fail to pay for court costs and fines as part of their sentence.
However, many state and local courts skirt around this by assessing fees, fines, and costs as part of a civil fine or “criminal justice debt,” or a condition of someone’s probation or parole. In that way, if you fail to pay these fines, you may go to jail.
What’s even more frightening is that these debtors don’t just enact this legal process one time. In fact, they often file for a debtor’s examination multiple times, or in the most egregious cases, in an endless loop until they eventually snare the debtor. That’s a favorite tactic of the “bottom feeders” of creditors like subprime and pay day loan lenders, who have a system to in place to repeatedly file the exam orders, some times as often as once a month. They’re just waiting for you to miss a court date, miss your paperwork, or become overwhelmed or confused by the sheer volume of court actions against you…and then you’ve fallen into their trap.
Who are the creditors engaging in such questionable collection practices?
These days, collection agencies aren’t just picking low-hanging fruit like in more prosperous times before the Great Recession. Now, they are often well organized, well funded, and aggressive like never before at going after debtors. In many instances, they’re run by attorneys, who have no qualms about escalating a file to the court system and filing legal paperwork. They are big, hungry, and bloodthirsty sharks the likes of which the debt collection industry has never seen.
In fact, three debt buyers account for at least 15 percent of all debt-related arrest warrants since 2005 in some states, Unifund CCR Partners, Portfolio Recovery Associates Inc. and Debt Equities LLC. Together, they’ve filed tens of thousands – or maybe even hundreds of thousands – of legal actions to threaten and force debtors into paying.
To be clear, these aren’t just recent unpaid credit card debts from consumers who are abusing the system, themselves. Most of these collection firms purchase the debts – often five or six years old or more – from companies who couldn’t collect, like credit cards, smaller collection agencies, and pay day lenders, most of the time for pennies on the dollar. The big firms then set up automated dialing equipment and a small army of attorneys to try to contact (harass) consumers, trying not only to collect 100 percent of the debt but pocketing legal fees and interest. Often, they don’t go over legitimate payment options like payment plans or settlements, but their goal is always to make at least twice what they paid for the debt, plus all costs.
Do different states have different laws and practices?
The good news is that the debt collection laws are far more responsible in a lot of states, but in Ohio, Missouri, Minnesota, Illinois, and Pennsylvania, the gloves are off for creditors who want to file judgments and get their debtors thrown in jail if they don’t pay – or to make them. In Minnesota for instance, debtors frequently spend up to 48 hours in jail cells among other lawbreakers before they even get to see an attorney or get a bail hearing. Arrests for unpaid debts are also increasing in other states because of declining economies, like Arkansas, Arizona and Washington. In some cases, debtors who are arrested are forced to stay in jail until they can come up with some sort of minimum payment.
Does this serve the public good?
In January, man in Illinois was sentenced “to indefinite incarceration,” locked behind bars until he could raise $300. His crime? He owed an unpaid debt to a local lumberyard. Judges in Minnesota have issued arrest warrants for people who owe as little as $85! In fact, debtors targeted for arrest since 2009 have owed a median of only $3,512 – hardly a giant pile of money or worthy of our distracting our courts and jails from “real” criminals.
Make no mistake, these courts aren’t serving the public but actually collecting corporate and private debts at taxpayer expense. For instance it almost always costs far more to put someone through the legal system and house them in jail then the debtor will ever recover. Indigent consumers are often uneducated, preyed on by subprime and shady lenders, barraged with offers for credit with terms they don’t fully understand, and in a vicious cycle of poverty that’s hard enough to escape without adding criminal action against them.
So what can consumers do to protect themselves?
It’s important for consumers to understand their rights as well as the laws in place to protect them. Each state has its own laws on collections, debt, and the legal process, but some federal statutes, like the Fair Debt Collection Practice Act (FDCPA), strictly prohibit debt collectors from even threatening you with criminal prosecution for failing to pay a debt.
If you receive any calls from collectors, try to record or document them. Do not give out personal information over the phone. Ask for a supervisor and request any agreements or proposed payment plans or terms in writing.
When you receive anything in the mail – whether from collectors, attorneys, or the courts, always open them in a timely fashion. Don’t throw them away but keep them in a file. Always show up for the schedule court appearances or file the appropriate paperwork, even if you don’t have money to pay them.
Consult with a local attorney, your state attorney general’s consumer division, or free legal counselors most courts have set up to counsel the public.
If you owe a large sum of money and you’re financially destitute, you may want to talk to a bankruptcy attorney who can file on your behalf, legally excusing you from paying your debts and protecting you from creditors.