Categories:

Many people have heard the commonly circulated myth that the U.S. does not permit people to be thrown in jail for their debts. Unfortunately, the notion that there is no longer anything equivalent to debtor’s prison is at best a half-truth. Although you cannot simply be put in jail because a credit card company sued you and obtained a judgment for an unpaid credit card balance, this does not mean that there are not ways that financial obligations can get you locked up. However, bankruptcy can be an effective protection from aggressive debt collection tools.

There is a particularly aggressive debt enforcement tactic that is being increasingly used by creditors which has essentially resurrected the threat of debtor’s prison. While there are certain kinds of debts that have historically carried the threat of incarceration for non-payment, these typically were debts like unpaid taxes or unpaid child support obligations. Private debts generally are not supposed to land you in jail, but creditors in a growing number of states have begun manipulating small claims court proceedings to lock up people who cannot pay their financial obligations.

The way the scheme works is that the debtor files a lawsuit for the unpaid loan, line of credit or credit card. Once the judgment is obtained, the creditor files for a debtor’s examination. This is a procedure where you are ordered to appear and answer questions posed by the creditor regarding your assets, income and bank account so that the creditor can acquire information about how to enforce the judgment. While you are supposed to be served with papers letting you know that you must appear at the debtor’s exam, you may have been served at an old address or not served with papers at all. The problem is that when you fail to show up, the creditor will ask the court for a bench warrant. This means that you may be arrested and held until the court proceeding unless you are able to post a bond. If you are struggling to pay the judgment, however, you may be equally unprepared to pay the bond to obtain your release.

Sometimes the creditor will summon the court for multiple debtor exams so that the risk of missing a hearing increases. Critics of this procedure note that many times the bond amount is equal to the debt so the funds are simply turned over to the judgment creditor. This process effectively turns civil court judges, court personnel and law enforcement officers into debt collection agents for the creditor. This practice even has been used for those who fail to pay small payday loans under $500. When a debtor is arrested for this small obligation it may cost several times that amount to sort out the legal hassles.

While this may be an alarming story if you are facing lawsuits or judgment from creditors, there are ways to secure protection from this type of predatory creditor action. One key is to obtain legal advice from an experienced New Mexico bankruptcy attorney if a creditor has filed a lawsuit or obtained a judgment against you. The automatic bankruptcy stay can stop the lawsuit from moving forward or prevent the creditor from obtaining a debtor’s exam. If the debt is ultimately discharged in a Chapter 7, you may not even have to repay the obligation.

The above information is provided to illustrate general principles of law and should not be interpreted as a specific legal opinion on an individual case.  You should contact experienced legal counsel to get specific legal advice that is based upon your specific circumstances.

The New Mexico law firm of Jay Goodman & Associates, PC offers a free consultation in our centrally located offices in Santa Fe and Albuquerque so that we can discuss your options. Call us today to schedule your free consultation at (505) 989-8117 to learn about your rights and options.

Tags:

Comments are closed