Many people have emailed me asking if they could go to prison for not paying their credit card debt. It seems that some collection agencies are trying to intimidate debtors with the threat of arrest and imprisonment. A collection agency representative might comment “if you don’t start making payments on this we can take you to court and put you in jail.” There’s a lot of information on this subject and I will attempt to organize it in an intelligent manner. The correct answer to this question is - it depends!  If you have any questions after reading this article please leave a comment at the bottom of this page.

See also all of my articles on Collection Agencies.

See also DebtPrison related article How to deal with Collection Agencies.

Failing to make payments on debt is not considered a crime in the United States. The U.S. hasn’t utilized a debtor’s prison since the 1850′s. Some countries will still place a debtor in prison for failing to make payments. However, the U.S. government has a vested interest in making debt a desirable circumstance, therefore debt is not criminalized. In order to go to prison you must be convicted of criminal behavior. Laws regarding these issues will vary state to state. See also DebtPrison related article How to settle your debts on your own.

Here are your options with debt you’re defaulting on:

1.  Settle your debt (but you’ll need some cash).

2.  File bankruptcy (an often nightmare).

3.  Ignore it and possibly go to jail for contempt of a court order (very rare).

4.  Start paying it back in full.

If you need immediate advice on bankruptcy or debt settlement, then please call 877-231-4384. This is a toll-free number. A representative will help evaluate your financial problems for free and can even connect you with a local attorney. You can also fill out our free bankruptcy evaluation form by clicking here.

What will most likely happen

It’s always been my understanding that your creditor can take you to civil court and obtain a judgment against you saying that you owe the debt.  Through the judgment the collector can then garnish your wages or even get liens against your assets. But getting to this point of wage garnishment or liens against assets is time consuming and usually never occurs.  That’s because the collector has to go through a process that I’ll explain later in the article.

Going to jail for contempt wasn’t something that I thought could occur, but then I’ve read some comments from my readers below.  I’m assuming there’s more to the cases than just the average default. It seems that in some rare cases an arrest warrant can be issued for contempt of court.  I think this is somehow related to your not showing up in court, but from what I’ve read these arrest warrants are very uncommon.

This was stated by Sherri below in the comments “They tried to take me to court in 2000 ish. I tried to set up a payment plan and the guy told me he would not allow a payment plan and wanted me to ask friends and family to pay the bill. This week I got a letter in from the sheriffs dept stating it was a warrant for arrest. The attached paperwork was showing a court date for 12/20/07. In which I NEVER received any paperwork stating I had a court date in Dec.”

And this was stated by Deb “I owe around 3,000 in credit debt, and a sheriff keeps banging on my door leaving me a note from the sheriffs dept, what the hell is this all about? And can they arrest me in my own home?”

I have no way of knowing specifically what occurred in the two above mentioned cases that led to the Sheriff’s Dept. getting involved.  In general, the negative outcomes (negative credit reporting, wage garnishment, liens, or jail) often depends on the amount of money involved and the aggressiveness of the creditor.  The more money involved (almost always in excess of $1,000) the more likely the creditor or collection agency will pursue legal action.

Usually the process follows these guidelines:

You have defaulted on your payments.  Your creditors collection division calls you daily to try and talk you into making a payment.  After a year or two they give up on the phone calls and letters.  They can’t get you to pay so they (this could now be a collection agency, not the original creditor) sue you in civil court.  This can happen even if you are in a debt settlement program.  It’s a lot of trouble and expense for them to sue you, so normally they won’t bother unless they figure they can get some money out of you.

Keep in mind that there are rules that collection agencies must follow according to the Fair Debt Collection Practices Act.  If they don’t follow the rules you can actually hire an attorney and file suit against them! For example, if they have your phone number, they are not allowed to call your family, friends, or employer (if you request them not to).  Also, you can write a cease and desist letter which instructs them to only communicate with you via U.S. snail mail.

Scenario 1 – You don’t show up and the judge rules in favor of the creditor and against you.  This judgment is an acknowledgement that you owe the money.  I’ve read that 80% to 90% of judgments are never collected!  This is because the judgment is usually just an acknowledgement that you owe the money, and that is all.  In order to collect another court date must be assigned to perform a ‘writ of execution’.  If they summons you for this, and you don’t appear, they may issue a bench warrant for your arrest.

A writ of execution is a common court order granted by a court in an attempt to satisfy a judgment obtained by a plaintiff. When issuing a writ of execution, a court typically will order a sheriff or other similar official to levy property owned by a judgment debtor. Such property will often then be sold in a sheriff’s sale, and the proceeds remunerated to the plaintiff in partial or full satisfaction of the judgment. It is generally considered preferable for the sheriff simply to confiscate money from the defendant’s bank account. If the judgment debtor owns real property, the judgment creditor can record the execution to “freeze” the title until the execution is satisfied.

If you don’t show up for this one you may be arrested for contempt of court.  This is the part of the process where the facts will be laid out.  This is the part where they get your employment information for wage garnishment or asset info for liens.  But bear in mind, most collections will not get to this point.  It really just depends on how aggressive they are on your particular case.  And many people are actually in a position where they cannot be collected on.  Perhaps you are disabled and on limited income.  Chances are they can get a judgment but will never be able to collect.  There is also a federal minimum (I think this figure is 30 hours of minimum wage pay per week), which if you make below, they cannot collect.  For example, if minimum wage is $5.80 per hour, times 30 hours, comes to $174/week or $702 per month.  If you make that or less they cannot touch you.  Money that is in IRA’s, custodial accounts, trusts, annuities, and insurance contracts are often untouchable.  See also, Restrictions on Wage Garnishment for Debt Collection.

Scenario 2 – You go to defend yourself against the creditor.  You explain why you do not owe the money.  Or you explain that you owe the money and cannot pay it because of personal circumstances.  The judge may or may not rule in favor of the creditor.  If you don’t owe the money or really can’t pay – just walk into court and defend yourself, you’ll be glad you did.

Please understand that the garnishment of wages depends on many factors such as: your level of income, possibly your spouses income may be considered, and the number of dependents you have.  To read about someone’s personal experience in using debt settlement companies read Tell Debt Settlement Companies to Kiss Your Ass.  If this article doesn’t convince you to stay away from these companies, I don’t know what will.

Can you be arrested at airport returning to U.S.?

I’ve seen this question come up quite often.  Some people moved away from the United States into another country.  However, they left behind tens (or hundreds) of thousands of dollars of debt.  Now they need to re-enter the U.S. for a vacation or to visit family.  They are worried about an outstanding arrest warrant related to the debt.    If you are concerned about this possibility try performing an information search on yourself at a site like this one.  Perhaps avoiding entering the state where you used to live would be a good idea.  Now if you have a warrant for fraud (related to your debt) the possibility for arrest may carry a bit more weight since this is a criminal, not civil arrest warrant.  Keep reading to learn more about fraud and other issues related to debt and jail.

Fraud

Also, if you obtained debt by committing fraud you can go to jail. For example, let’s say you just moved into a new apartment. Mail for the previous tenant is still arriving at your apartment. A credit card offer comes in the mail for the previous tenant. You fill out the application, mail it in, and start using this new credit card which is in someone else’s name. This is fraud and if convicted you could serve time in prison. This happened to my cousin. He moved out of his apartment and the following tenant received his mail and ran up thousands of dollars in retail charges. He had to get a lawyer involved and it took years to get this completely removed from his credit report.

Perhaps you have ‘borrowed’ your sister’s credit card to go out and spend a couple of grand without her knowing about it. In this case you could be fined and or imprisoned for fraud. This type of conduct is also considered criminal in nature.

You could possibly be looking at prison if you ran up thousands of dollars of debt on credit cards with no intention of paying it back. Recently the federal government changed the law regarding filing bankruptcy on credit card debt. The new law makes it harder to erase the debts you owe to credit card companies. Before this law went into effect, bankruptcy courts received a record number of new filings. Broke Americans were all trying to file for bankruptcy before the new law kicked in.

At the time I had an acquaintance that had in fact, filed bankruptcy on debts to various creditors, worth over $60,000. We were discussing the new law and he suggested that I run up tens of thousands of dollars in credit card debt. When the bills came due I would simply file bankruptcy before the new law took effect. Many people did exactly that. If the credit card company can prove that this was your intention, then some judges would find you guilty of fraud – taking out loans that you had no intention of repaying. However, it is usually difficult to prove that someone had no intention of repaying the debt. For example, if you applied for six credit cards, maxed out the limits for a total of $15,000, and then never made a payment, you could be in serious trouble. It would be obvious that your intent was criminal.

In general if it can be proved you received money or goods by deceptive practices you may be eligible for a criminal conviction.

Find more bankruptcy specific information before making a final decision, at Totalbankruptcy chapter 13 and chapter 7 website pages.

You could also be imprisoned for the following:

If you violate a court order (a judgment against you to pay child support).

If you are convicted of willfully failing to pay your income tax to the government.

If you are attempting to hide assets or income to avoid paying a debt for which there is a judgment against you.

Bankruptcy related acts that can result in criminal penalties include:

If you defraud tenants

If you forge a bankruptcy judges signature

If you commit perjury during the creditor’s meeting

Keep in mind that there is a difference in a judgment (civil court decision about money you owe another party), and a verdict (criminal court conviction of a crime). In a civil court case the outcome will largely depend on the judge and his interpretation of the circumstances.

Simply defaulting on your debt is not a crime

If failing to pay your debts equaled prison time then half the people you know would be in jail. Even the author of this article, although my debt is caught up now and will be soon be paid off in full. Many people have lost their jobs or had unexpected medical issues force serious changes to their financial lifestyle. Through no fault of their own a debtor may no longer be able to make the minimum payments. This is not a crime and one cannot go to jail for these reasons. Like I said earlier, collection agencies will do anything they can to convince you to send them a payment. If you have credit card debts or medical bills that you can no longer pay, you can’t go to jail. This is why we have debt settlement, bankruptcy, and ruined credit scores.

Although you can’t go to jail for failing to pay your debts, there is a list of negative consequences you may be eligible for;

Collection Agencies can call your phone several times a day.

They can even call your place of employment, asking for you or where they can find you.

They can call your neighbors and ask them if they know where you are.

They can sue you in civil court for the balance of debt you owe them.

They can win a judgment in civil court against you for the debt owed.

Through the judgment they can garnish wages from your paycheck.

Through the judgment they can garnish your banking accounts.

They can (in some states) get a lien against your assets (house) and sell it to pay off the debt.

They can report the collection information to credit bureaus which lowers one’s credit score.

So the short answer is no – you can’t go to jail for simply not paying your debts, unless you are in contempt of court (very rare). But, creditors and collection agencies can make your life a living hell. So it’s in your best interest to get this situation handled in a manner that benefits you.

Remember that some debt collectors will scare you anyway they can to force you to pay up. The best advice I can give is to educate yourself about your options. Take the time to read information across the web about debt and collection. There are a lot of articles out there – most of them are accurate and truthful. Go forth and be debt free!

Protect your family — let a bankruptcy lawyer help you explore whether Chapter 7 bankruptcy or Chapter 13 bankruptcy will offer you the most financial clarity. The first step to financial renewal is completing this free evaluation form.

Related Articles

*  Restrictions on Wage Garnishment for Debt Collection

* The Fair Debt Collection Practices Act

* Get Everything in Writing: Collection Agencies and Their Lies

* Reasons not to file Bankruptcy or Settle Your Debts

* Can you go to jail for not paying your debts?

* How to settle your debts on your own

* How to deal with collection agencies

* Sample Debt Validation Letter

* Information on Credit Card Balance Transfers

* How I Escaped Credit Card Debt

* What You Should Know About Credit Cards

* How to seek bargains for food and clothes

* Steven Palazzo, Mississippi, Property Rights, and Eminent Domain

**Disclaimer – Debtprison.net does not administer legal or financial advice. The contents of this website are my opinions on collection agencies and how to deal with them. Nothing on this website should be interpreted as legal advice or council. No opinions on this website should be used to replace the advice of your financial advisor or your legal council.

A reader at How to settle your debts on your own wants to know when he should start trying to settle his unsecured debt. He also wants to know which one to settle first. Now bear in mind that you can’t miss a payment in October and expect to settle your debts in November or December. Credit card companies and collection agencies aren’t stupid! If you could afford a lump sum settlement that soon after having missed a payment…. then common sense will tell you that the debtor can afford to continue making the minimum payments.

My wife and I owe more or less $40,000 on our credit card debt and an unsecured loan. We plan to settle our debt on our own. We stopped paying our credit card bills two months ago and they immediately started calling and harassing us. Also, I lost my job so my wife is the only one working and we can’t afford to pay the minimum monthly payments. We’ve got a $25,000 unsecured loan and more or less $15,000 in credit card debt. I don’t know when will I start sending them letters and who’s the first one I will talk to and negotiate with. And I’m worried that if I don’t take action in the near future they will sell my account to a collection agency! Please help – thank you very much!!!!

Angelo

Hey Angelo,

First off it’s too early to even start discussing settlement with these guys. That’s because you need a cash lump sum to settle with the collectors. And if you could afford a lump sum you could afford the minimum payments. You’re gonna have to let this thing sit for at least a year most likely. Meanwhile you can just tell them that you’re broke for the time being and will make payments when you have money… but for now you’re living from check to check to eat.

Sometimes the original creditor will not settle the debt – they sell it off to a collection agency instead.  If they sell or assign the debt to a collection agency then I suggest you exercise your rights under federal law and write them a Debt Validation Letter.  This is just to insure that the collection agency is following correct procedures.

Now let me ask you this question…

Would you rather have to deal with this crap (collectors calling, judgments, wage garnishment) for the next three to ten years… or would you rather get a job (or two jobs) and work like crazy to pay this debt off in full. That’s about your only options…
Now if you can’t or are unable to work then the best thing to do is settle with these guys later on. But in the meantime you might want to change your phone number and deal with your collectors through the mail only. And then there’s always the possibility of getting a judgment slapped on you in civil court. Bear in mind the better record keeping you undertake the better off you will be. See also, How to deal with collection agencies.

Also, is there anything you could sell to help get you out of this jam? Can you sell your cars, your houses? Can you downsize to cheaper cars or cheaper houses? Can you move in with a relative and pay no rent? You and the wifey need to have a serious discussion and think of these types of questions.

If you do decide to settle I would use the ‘debt snowball’… starting with the smallest debt and working my way towards the largest. I’d initially try and settle for 50 cents on the dolllar with the debt of lowest balance. Bear in mind that I would try and settle based on what the balance is RIGHT NOW. Not what it will be in one or two years.

That’s because once the credit card companies and collection agencies get through tacking on their satanic onslaught of fees, penalties, and interest… these debts could easily double in balance before you’re ready to settle them. So what may be a credit card balance of $4,000 today… may be 8 or $10,000 in two years. I would inform them that I’ll settle for 50 cents on the dollar based on the original default amount… in this case I’d offer $2,000 for the initial defaulted debt of $4,000.

Good Luck and Happy Holidays!!!

DP

Related Articles

* Restrictions on Wage Garnishment for Debt Collection.

* The Fair Debt Collection Practices Act

* Reasons not to file Bankruptcy or Settle Your Debts

* Can you go to jail for not paying your debts?

* How to settle your debts on your own

* How to deal with collection agencies

* Sample Debt Validation Letter

* Information on Credit Card Balance Transfers

* How I Escaped Credit Card Debt

* What You Should Know About Credit Cards

* How to seek bargains for food and clothes

It’s estimated that the average American family has eight different credit card accounts.  How did this happen?  Having just watched the Frontline special “Secret History of the Credit Card“, I was quite amazed at the evolution of the modern Credit Card Industry.  It seems that South Dakota was the State where the credit card industry really began to prosper.  Sioux Falls South Dakota is one of the major credit card processing locations in America, processing millions of pieces of mail daily.  From credit card offers to incoming payments, the Post Office in Sioux City is quite the hot spot.

Why South Dakota?

Prior to 1979, South Dakota had many laws dictating the interest rates that loan agencies and banks could charge for certain items.  For example, they had one interest rate for new cars and another for used cars.  At the time South Dakota, like all of America, was in a recession.  So to encourage banks to loan money they removed these caps on interest rates.  Meanwhile in New York, the Chairman of Citibank Walter Wriston, was looking for another state in which to do business.  New York had ‘usury’ laws which permitted a credit card company from charging more than 12% interest.  Walter claims that at the same time Citibank was going broke because they were borrowing the money at 20% from Federal Reserve District Banks.

If you need immediate advice on bankruptcy or debt settlement, then please call 877-231-4384. This is a toll-free number. A representative will help evaluate your financial problems for free and can even connect you with a local attorney. You can also fill out our free bankruptcy evaluation form by clicking here.

In 1981 Citibank moved its credit card division from New York to South Dakota.  Almost simultaneously there was a U.S. Supreme Court decision ruling that a Bank could ‘export’ its interest rate to other states (The Marquette Decision).  This allowed South Dakota to become the credit card capital of America.  In other words, if state law in South Dakota allowed banks to charge 25%, then they could send out credit card offers to all 50 states with wild interest rates, protected by South Dakota law.  Also, Delaware copied South Dakota’s usury laws and soon Wilmington, Delaware became the credit card King of the East.

For the first time in U.S. history there was no limit to the interest rates that banks could charge nationwide.  This permitted credit card companies to expand; soon becoming the most profitable sector in overall banking.  Citibank has been more profitable than Microsoft or Wal-Mart.

Why are credit cards so profitable?

Currently about 145 Million Americans have revolving accounts with credit card companies. In 2003 alone 1.5 trillion dollars was charged onto credit cards.  Approximately 55 million Americans pay off their credit card balance at the end of each month, preventing the banks from making profits off of them.  The top ten credit card companies charge some of their customers 25 to 30% interest, some even pay more than this.  Meanwhile interest rates from the Federal Reserve have been at or near record lows since 9/11, enabling these companies to make sick profits off the 90 million Americans who don’t pay their balance at the end of each month.

On top of this already highly profitable situation, Americans are carrying a record high amount of credit card debt.  The average American family is carrying around $8,000 in revolving credit card debt.  Not to mention that the savings rate of Americans is at it’s lowest since 1933 (The Great Depression).  During the late eighties Andrew Kahr (a banking consultant) convinced many credit card companies to lower their minimum payment from 5% of the balance to 2%.  This allowed the debt to ‘revolve’ longer as the balance would often increase.  In Andrew’s words “Having a lower minimum payment allows you to offer higher credit lines.”  Often customers would carry a higher balance and pay the minimum, allowing the credit card company to maximize their profit making potential.  Every month about 35 million Americans pay only the minimum payment.

Many borrowers seem alright with the idea of high balances so long as they can pay the minimum payment.  And at 2% of the balance this may not prove too difficult.

The Fine Print

Credit card companies use the three major credit history report agencies (Expirian, Transunion, and Equifax) to target borrowers who don’t pay their balances off at the end of each month.  Fair Issac reviews credit histories and issues the FICO scores banks use to determine loan eligibility.  Your FICO score often determines how much interest you will pay on a credit card.  As the issuer of the credit card, the bank can change the terms of your credit card agreement at any time, and for any reason they see fit.  There’s no law that prevents the issuer from changing the conditions of the loan.

Universal Default Rate

If you were to miss a car payment or get behind a month on your mortgage, this can trigger a Universal Default.  This loop hole allows your credit card issuer to raise your interest rate for being a month behind on your car note, house note, or any other financial obligation they become aware of.  It’s in your credit card contract.  These banks rationalize that if you’ve fallen behind on another creditor, you are now considered high risk to them as well (credit card issuer).  Also, if you have high balances with other credit cards, you could fall into the ‘high risk’ zone. This agreement allows the credit issuer to raise your interest rate on items already purchased.  So if you bought a flat screen TV. last year, and your interest rate was 9%, they can increase it to 20% just six months later if they’d like.  What other organizations are allowed to do this?

Smiley VS. Citibank

In 1996 the U.S. Supreme Court ruled on Smiley vs. Citibank.  The Supreme Court ruled that credit card companies could increase the ‘fees’ associated with their debtors.  So what might have been a $10 late fee has now become a $35.  Since the Smiley ruling, credit card issuers have doubled the amount of revenue they bring in from fees.  Late Fee’s, Over the limit fees, return check fees and on and on.  And once these fees are applied, the bank now has the option to increase your overall interest rate – often doubling it as well.

The Office of the Comptroller of the Currency (OCC) is part of the Treasury Department. This office regulates the National Banks, including the ones that issue credit cards.  The acting Comptroller of the Currency in 2004, Julie Williams, stated that the OCC has three main purposes.

1. To make sure the banks don’t fail.
2. To insure the integrity of how the banks operate their corporate governance.
3. To make sure that they deal fairly and honestly with their customers.

This office has the ability to take enforcement actions against banks if they deem it necessary.  When asked if she could give an example of when she brought a large institution to task, Julie responded “the action we took against Providian.”  During the late 1990′s San Francisco based Providian was experiencing double digit growth.  They were offering credit to the riskiest of customers with the lowest of credit scores.  Much like the sub prime housing market, Providian was targeting customers that had no business seeking credit in the first place.  Providian would receive payment and deposit the check, but not apply the payment to their customers account, sometimes for weeks.  This would result in late fees and over the limit fees for Providian customers.  Almost 50% of Providian’s profit was made from fees, not interest on the revolving debt.

Pat Wallace, head of the better business bureau in San Francisco, says that the OCC was contacted and offered no help.  In fact, it wasn’t until the local media got involved that the OCC contacted the San Francisco District Attorney’s office.  But the OCC didn’t exactly help.  They informed this D.A. that the OCC was the Federal Authority for these National Banks, and therefore, “You don’t have any jurisdiction.”  Meaning that the D.A. could not prosecute Providian for fraud.  Eventually Providian was slapped with a 300 million dollar judgment, which the OCC took credit for.  The OCC’s main order of business seems to be to restrict local prosecutors from suing National Banks for their ‘loan shark’ practices.  The OCC is trying to eliminate the individual States Attorney Generals from pursuing legal action against these banks.

In 2004 the OCC declared itself the ‘regulator’ of all National Banks.  This is an attempt to insulate the National Banks from the consumer protection laws of individual states.  The OCC trotted out the Providian case as proof of their determination to protect consumers. The Credit Card Industry receives more complaints than any other industry in the country.

Watch the entire PBS investigation by clicking here.

Protect your family — let a bankruptcy lawyer help you explore whether Chapter 7 bankruptcy or Chapter 13 bankruptcy will offer you the most financial clarity. The first step to financial renewal is completing this free evaluation form.

Related Articles

* Reasons not to file Bankruptcy or Settle Your Debts

* Can you go to jail for not paying your debts?

* How to settle your debts on your own

* How to deal with collection agencies

* Sample Debt Validation Letter

* Information on Credit Card Balance Transfers

* How I Escaped Credit Card Debt

* How to seek bargains for food and clothes