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Jailing for Debt on the Rise

by Matt Clarke

The use of arrest warrants to jail people who have defaulted on debts is increasing. In Minnesota alone, there were 845 civil arrest warrants issued against debtors in 2009, an increase of 60% compared with 2004. Over a third of the states allow people to be locked up for failing to pay their debts – including Arizona, Florida, Indiana, Illinois, Utah and Washington.

Just because there is an outstanding warrant doesn’t mean the debtor will be arrested. But if a debtor is arrested, he or she will spend time in jail alongside prisoners accused of crimes. The average jail stay for an arrested debtor is only hours, though some may be incarcerated for days.

Only about one in six defaulted debtors are actually at risk of arrest. The level of risk is determined by where the debtor lives: Some counties, especially larger ones, have a sufficient number of deputies available to task some with serving civil arrest warrants.
Other counties don’t have enough deputies and concentrate on criminal warrants. In still other counties the debtor will only be arrested if stopped for something else, such as a traffic ticket.

“If you talk to 15 different counties, you’ll find 15 different approaches to handling civil warrants,” stated Sgt. Robert Shingledecker of the Dakota County Sheriff’s Office in Minnesota. “Everything is based on manpower.”

Indeed, Vanderburgh County, Indiana superior court judge Robert Pigman has asked the state’s Supreme Court to examine the legality of arrest warrants for debtors. His concern was that law enforcement officials had claimed they were unable to timely process criminal warrants due to the large number of debtor warrants.

The size of the debt is not necessarily a determiner of whether an arrest warrant will issue. Minnesota judges have issued arrest warrants for debts as small as $85 – less than half the cost to taxpayers for incarcerating a debtor overnight. The median amount owed by debtors facing arrest in Minnesota is $3,512. In 2004 it was $2,201.

Although being a delinquent debtor was decriminalized and debtors’ prisons were abolished in the U.S. in the 19th century, debt collection companies have become masters at manipulating the system to have debtors arrested – usually for missing a court hearing in a lawsuit filed over the debt. This practice is on the rise in states such as Washington, Arizona and Arkansas, driven in part by a bad economy and aggressive debt-purchasing firms that use all available tactics to collect the debt and associated interest and fees.

“The law enforcement system has unwittingly become a tool of the debt collectors,” said Spokane, Washington debt attorney Michael Kinkley. “The debt collectors are abusing the system and intimidating people, and law enforcement is going along with it.”

Why do so many debtors miss their court appointments? Often the debt has been purchased from the original creditor by a large debt-buying company, and the notice concerning the debt and court hearing comes from the firm that acquired the debt, a name unfamiliar to the debtors.

“They may think it is a mistake. They may think it’s a scam. They may not realize how important it is to respond,” noted law professor Mary Spector of Southern Methodist University’s Dedman School of Law in Dallas. Additionally, most debtors don’t realize that they can be jailed for missing debt-related court hearings.

Once the court is directly involved in debt repayment, delinquent debtors can be jailed for failure to make court-ordered payments. In Kenny, Illinois, for example, a court ordered a man “to indefinite incarceration” until he paid $300 toward a lumber yard bill. Also in Illinois, Easy Money Express, Inc. obtained arrest warrants against four debtors; one spent five days in jail for failing to pay $275. In September 2010, the Illinois Dept. of Financial and Professional Regulation sought to revoke Easy Money’s license, saying the company had “exploited the court system to obtain the arrest and incarceration of its customers.” Such actions by regulatory agencies are rare, though.

Driving the increased use of debtor arrest warrants is the lucrative purchase of debts by large, well-funded, aggressive centralized debt collection firms. Often these firms pay only pennies on the dollar for bad debt bought from credit card companies, retailers or service providers. Three firms – Unifund CCR Partners, Portfolio Recovery Associates, Inc. of Norfolk, Virginia and Debt Equities, LLC – were responsible for 15% of all debt-related arrest warrants issued in Minnesota since 2005. Another major debt-buying firm, Encore Capital Group, Inc., recently adopted a “code of conduct” that prohibits seeking the arrest of debtors.

The companies use automated telephone dialing equipment and teams of lawyers to collect debts, interest and fees. Their goal is to collect more than twice the face value of the debt, calculating that their expenses are covered with double the debt’s value and anything above that is profit.

Debt purchasing can be very profitable. Portfolio Recovery Associates earned $44 million on $281 million in gross revenue in 2009, an enviable 16% margin. Encore Capital Group of San Diego had a 2009 margin of 10%. By contrast, Wal-Mart’s 2009 margin was 3.5%.

Todd Lansky, CEO of Northbrook, Illinois-based Resurgence Financial, LLC, defended his debt-purchasing firm’s practices, saying that they operate within the law and will have contacted a debtor up to a dozen times before a warrant is issued for missing a court hearing. “This is a last-ditch effort to say, ‘Look, just show up in court,’” he said.

So what happens if a debtor appears in court, either before or after an arrest? Most likely the court will require the debtor to fill out a multiple-page financial disclosure form listing all of his or her assets. This information is then turned over to the debt collection firm, which uses it to garnish wages and bank accounts. If a debtor is arrested and posts bond, the amount of bail is often the exact amount of the debt and will usually be given to the debt collection agency.

“It’s certainly an efficient way to collect debts, but it’s also highly distasteful,” remarked Hennepin County, Minnesota district court judge Jack Nordby. “The amount of bail should have nothing to do with the amount of debt.”

Robert Blaeser, chief judge of Hennepin County’s civil court division, disagreed, noting that setting the bail at the debt amount streamlines the bail-setting process.

“It’s arbitrary,” Blaeser acknowledged. “[But] the bigger question is: Should you be allowed to get an order from a court for someone to be arrested because they owe money?
You’ve got to remember there are people who have the money but just won’t pay a single penny.”

While that may be true, more often debtors default due to an unforeseen crisis such as large medical expenses or losing their job or house. Placing them in jail may get the debt collection agency the amount owed in the form of bail money, but that will generally be paid by the debtor’s friends and family members, which effectively shifts the debt to third parties. It also shifts the cost of debt collection to the public which must pay for the courts, police and jail.

“Before we take away a person’s freedom, we want to ensure that there are procedural safeguards,” stated Palm Beach County, Florida judge Peter Evans. Having safeguards, however, misses the point as to whether we should be locking up debtors – many of whom simply can’t afford to pay their debts – in the first place.

Meanwhile, taxpayers have to foot the bill for arresting and incarcerating delinquent debtors, but only the debt-collection firms reap the financial benefits that result from the arrest. This makes jailing debtors another form of corporate welfare that is subsidized by the taxpaying public, and further illustrates the profit motivation that pervades our criminal justice system.

Sources:, Wall Street Journal,

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