Posts Tagged ‘lawsuits’

Debtors’ Prison?

0502tc

 

Although jailing people for unpaid debts was made illegal in the 19th century, in some states, particularly creditor friendly states like Minnesota,  it appears that debtors’ prisons still exist.  A Minneapolis Star Tribune story revealed a disturbing practice by the debt collection industry: using the power of a bench warrant to arrest debtors for failure to appear at court hearings.

The way it starts is that the debt collector gets a default judgment, which gives them the power to garnish wages, levy bank accounts, and seize personal property in order to satisfy the judgment. As part of the process, a hearing is conducted where the debtor must reveal his income and property to the debt collector.  While the individuals in the story were not technically arrested because they owed money, the judges oftentimes set the bail at the amount of the debt.

The story also mentions a couple of other states the connection between the person’s arrest and the debt is more direct: Indiana and Illinois. In one case, an Illinois judge ordered a man jailed for an indefinite period until he could pay $300 toward a debt to a lumber yard.

While most people will not face jail time for unpaid debts and while certainly, debtors’ prisons are no longer legal, the out of control debt collection industry has never particularly cared about what is legal and what isn’t.  Most debt collectors at best straddle the law and at worst outright ignore it.  The tactics of one firm caused this Florida man so much grief that he committed suicide. His family is now suing that firm for wrongful death.

There are steps you can take to avoid the worst debt collection tactics:

1: If you are sued, do not allow the debt collector to get a default judgment by failing to file an answer in time. In most states, you have up to 30 days to file a response.  While you may file the answer yourself, consulting with an experienced consumer law and/or bankruptcy attorney  is highly recommended. If you cannot afford an attorney, there are many who provide legal services to low income individuals for free or at a very low cost. You can find one in your state by going here.

2: Consult with a credit counseling/debt management agency. A credit counselor will work with you and your creditors to arrange a payment plan that you can afford and that will have your debts paid off in a few years. Most creditors will work with debt management counselors to lower your payments to an affordable level and will stop collection efforts once they are aware that you are on a debt management plan.

3: If you have no income or your current income is so low that you can barely cover your necessities, then it’s time to file for bankruptcy. Chapter 7 bankruptcy can protect you from judgments and creditor lawsuits. To find a bankruptcy attorney you may go here or here.

Wage Garnishments On The Rise : How To Protect Yourself

gavel As the economy continues to sour and more people fall behind on their bills, more people find themselves being sued by their creditors, or more accurately, by debt collectors. 

Because most people don’t know how to react to being sued and very often do not show up to court, creditors largely win by default. Once a court judgment has been entered, then the creditor may collect by garnishing wages, in most cases, a quarter of take-home pay. Especially in this economy, where every dime counts, having a quarter of your wages disappear into a garnishment can be devastating.

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