Can You Go to Jail for a Bad Debt?
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UPDATED: Jul 16, 2021
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Debtors’ prisons were common in nineteenth century Europe, where the failure to repay loans could result in detention or forced labor until the debt was paid. In the modern world, the destitute (and even the wealthy) can discharge most debt in bankruptcy. The failure to pay debt may carry a social stigma, but in most cases, not paying your bills is a breach of contract, not a crime.
Debt collectors are nevertheless bullying consumers into paying debts by threatening them with criminal prosecution. In many cases, those threats violate the Fair Debt Collection Practices Act. According to the Federal Trade Commission, the FDCPA prohibits debt collectors from using deceptive methods to collect a debt, including threatening the debtor’s arrest if the debt is not paid. That threat is deceptive if the debtor has committed no crime and if no grounds for arrest actually exist.
In unusual cases, however, a consumer might face prosecution for committing a crime that results in a debt. Making false statements on a loan application is one example. A more common example, and one often exploited by debt collectors, is to write a bad check.
Bad Check Debt
Whether it is illegal to write a bad check depends on the facts and on state law. The answer usually depends on whether the person writing the check knew that it would bounce but wrote it anyway. A check that bounces due to a bookkeeping error might not create criminal liability. In fact, many states give consumers a window of time in which they can make the check good in order to avoid prosecution.
In some states, only checks written for certain purposes can subject the writer to a prosecution. In nearly all urban areas, criminal prosecutions for writing small checks that bounce are a low priority for busy prosecutors. And every state sets a limitations period that bars prosecution after the time for filing a criminal charge has expired.
Whether a bounced check can result in a successful criminal prosecution therefore depends on the particular facts of the case. A recent report by the ACLU nevertheless found that private collection companies “have contracts with more than 200 district attorneys’ offices that allow them to use the prosecutor’s seal and signature on repayment demand letters.” That makes it easy for debt collectors to create the impression that failing to make a bad check good will result in an arrest, even if the debt collector has no facts to back up the assertion that a crime was committed.
The ACLU estimates that one million consumers receive a letter from a debt collector each year that threatens criminal prosecution and jail time if they fail to pay a bad check. The ACLU investigation discovered that those threats are often unfounded and therefore unlawful.
In many cases, consumers receive a collection letter long after the time for commencing a criminal prosecution has passed. In some cases, they already paid the merchant. Debt collectors nevertheless bully them into paying a debt they no longer owe by threating a prosecution that appears to be supported by the district attorney’s office. Even if the debt is still owed, debt collectors violate the law by threatening a prosecution when they have no good faith belief that the district attorney’s office will actually commence a prosecution.
Businesses purchase debt for pennies on the dollar, then file lawsuits to collect the full amount of the debt, often adding fees that they have no lawful authority to charge. They typically file the lawsuits without proof that the debt is actually owed. For example, a department store might claim that a customer purchased a $50 blanket two years earlier using a department store credit card but never paid for the purchase. The company that purchased the debt from the department store may be unable to provide proof that the purchase was made or that the person who made the purchase was authorized to use the credit card.
Businesses that purchase debt nevertheless file a lawsuit in anticipation that the person sued will ignore it and that they will obtain a judgment by default. In many cases, default judgments are entered because the person who is sued never learns about the lawsuit.
After obtaining a judgment, the businesses require debtors to attend a “judgment debtor examination” to answer questions about their assets and wages. The ACLU discovered that debtors often fail to appear for the examination because they are sick, cannot afford to miss work, or have childcare responsibilities. When a debtor fails to appear, regardless of the reason, the business obtains an arrest warrant.
Once the arrest warrant is served, the debtor ends up in jail. Some judges set bail in the amount of the debt and then turn the posted bail over to the debt collector. The court never decides whether the debtor actually owes the debt that is reflected in a default judgment. The ACLU report suggest that debt purchasing companies have effectively turned courts into collection agencies that operate at public expense for the benefit of private companies.
Understand Your Rights
Taking a few simple steps can prevent you from ending up in the modern version of a debtor’s prison. First, if you bounce a check, pay the recipient of the check its full value as soon as you can. Make sure the recipient returns the check in exchange for payment. If the recipient insists on getting extra money in exchange for surrendering the check, send a letter by certified mail (return receipt requested) explaining that you tried to pay the check and that you are still willing to do so, but that you will not pay any extra charges that you did not agree to pay and that you do not owe. Keep a copy of the letter so you have proof that you tried to pay the check.
If you are sued for a debt, don’t default on the lawsuit. File an answer with the court. If you are sued in small claims court, you can probably get a simple form from the court that you can use to answer the complaint. Deny that you owe the debt and make the debtor (or the company that purchased the debt) prove that you owed it. If you actually owe the debt, you may be able to settle and avoid court costs. If the company that sued you can’t prove you owe the debt, however, the case should be dismissed.
If a judgment is taken against you and you receive a notice to appear for a debtor’s examination, make sure you attend. Don’t bring money or a watch or other valuable property to the examination, because the debtor may be entitled to seize your property to collect the debt. Answer only what you are asked. Don’t lie, but don’t volunteer information.
You can also consider filing bankruptcy. While bankruptcy will not stop a criminal prosecution, it will prevent collection efforts, including letters from debt collectors. If you are being harassed for a debt you do not owe, talk to a lawyer about bringing a lawsuit under the FDCPA. Since the debt collector is required to pay your legal fees after losing a FDCPA lawsuit, you may be able to find a lawyer who will represent you without paying a fee in advance.