Welcome to Debtors' Prison: What's in Your Wallet Can Land You in Jail

Last Updated Mar 17, 2011 5:46 PM EDT

Better pay your bills, or you could end up like this guy:
In September 2009, Jeffrey Stearns, a concrete-company owner, answered a knock at the door from a Hancock County, Ind., deputy sheriff. The deputy was holding a warrant to arrest Mr. Stearns for not paying $4,024.88 owed to a unit of American International Group Inc. on a loan for his pickup truck.

After being handcuffed in front of his four children, Mr. Stearns, 29 years old, spent two nights in jail, where he said he was strip-searched and sprayed for lice. Court records show he was released after agreeing to pay $1,500 to the loan company. "I didn't even know I was being sued," he said, though he doesn't dispute owing the money.
Welcome to debtors' prison, circa right now. In a similar case, according to the WSJ, one Illinois resident was arrested for missing a court hearing regarding the $1,159.87 she owned on her Capitol One (COF) credit card. She paid $500 to get out of the local lock-up, which the company took as partial repayment of the debt.

Although the U.S. abolished the practice of jailing someone for owing money in the 1830s, more than a third of U.S. states allow the police to haul you in for not making payments on credit card, auto and other loans. And in a reflection of the hard economic times, the number of arrest warrants going out for people who owe money is rising. Local politicians and legal officials are now questioning the practice. They argue it wastes state resources and distracts law enforcement authorities from pursuing more serious crimes.

Criminalizing poverty
If debt collectors won't get you, the courts might. Many states hit people convicted of a crime, even for minor offenses such as speeding, with a range of fees. Skip out on those and you can go to jail, too. Some states also apply "poverty penalties," including late fees, payment plan fees and interest when people are unable to pay all their debts at once, according to New York University's Brennan Center for Justice. Alabama charges a 30 percent collection fee, for instance, while Florida allows private debt collectors to add a 40 percent surcharge on the original debt.

Many Florida counties also use so-called collection courts, where debtors can be jailed but have no right to a public defender. In Pennsylvania, prisoners are ineligible for parole unless they pay a $60 fee, or roughly $40 less than it costs to incarcerate someone in the state for a single day.

Such "criminal justice" fees amount to criminalizing poverty, says an attorney with the ACLU National Prison Project:
Incarcerating people simply because they cannot afford to pay their legal debts is not only unconstitutional but also has a devastating impact upon men and women, whose only crime is that they are poor.
Like states, companies have every right to collect an unpaid debt. But to put people in jail over it is a great step backward for this country. It indicates a legal system as dysfunctional as our politics, as deadbeats like AIG's Joe Cassano escape responsibility for their chicanery while lining their pockets at the public's expense. Speaking of, the insurance company's debt to taxpayers stands at nearly $59 billion. Anyone up for a citizen's arrest?

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  • Alain Sherter On Twitter»

    Alain Sherter is an award-winning business journalist who has written for The Deal, MarketWatch and Thomson Financial Media.

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