The concept of debt is so ingrained in the way things have always been that it’s even managed to seep its way into religious discourse. In his book Debt: The First 5,000 Years, anthropologist David Graeber goes so far to note that the concept of owing a debt has been used as a measuring stick for morality. “The Lord’s Prayer, Graeber reminds us, could just as well read ‘forgive us our debts, just as we forgive our debtors’ — and Christ was called a ‘Redeemer,’” writes Thomas Meaney in his New York Times review of Graeber’s book. “In many languages, the word ‘debt’ is the same as ‘sin’ (in some cases the interest could be paid in sacrifices, but the principal was always one’s life).”
Today, with the U.S. in $22 trillion of debt (surely a made-up number) and the total U.S. consumer debt standing strong at $13.86 trillion (also, please, a made-up number), which includes mortgages, auto loans, credit cards and student loans, it’s safe to say that the chronicles of debt is just getting to the good part. “On average, an American between the ages of 18 and 65 has $4,717 of credit card debt,” reports Money.com. “According to CreditCards.com, the average credit card’s interest rate is 15 percent. At the minimum payment of $189, it’ll take 10 years and a month to pay off that $4,717. The total payments would amount to $22,869. That’s a $18,155 cost for a very small loan.”
Luckily for all of us, we don’t live in the ancient Mesopotamian system, in which poor folks could have members of their family subject to debt peonage as a result of being unable to pay off the money they owed. Nor do we (officially — more on that later) live in the age of the debtors’ prison, “brick-and-mortar facilities that existed in the late 1600s to the early 1800s that were designed explicitly and exclusively for jailing negligent borrowers, some of whom owed no more than 60 cents,” per the Marshall Project.
Still, the money you owe never really just disappears. In fact, there are a series of steps — levels of debt hell, you might call them — on the path of a debtor who is unable to pay their debts.
Level One: Your Creditor Attempts to Establish Contact
There are all kinds of ways that people can owe money, and every different category has its unique traits. But generally speaking, there are some processes that are pretty common across the board. The first step in the process when you don’t make a payment on time is the creditor itself starting to contact you. “Generally those are in-house collection types of efforts to say, ‘Hey, look, did you forget the payments? The payment is coming due,’” says Robert Foehl, executive in residence for business law and ethics at Ohio University. “Many creditors, if they have a certain size bank, are for the most part equipped to try to work with their customers over a period of time to try to get payment.”
Level Two: Your Creditor Summons a Collection Agency
If the creditor — let’s say, for example, a bank — is unable to get in touch with the person who owes them money, the next step is for the bank to use the services of a professional debt collection agency to try to collect said debt. According to the ACLU, there are more than 6,000 debt-collection firms operating in the U.S., collecting billions of dollars each year. “Typically that’s done because the bank is designed to lend money and collect deposits and those sorts of things,” says Foehl. “They don’t have extreme expertise in terms of debt collection, so they’ll reach out to a third-party company saying, ‘Look, we tried to do our efforts here in the early stages to maintain good relationships with our customers, to have a light touch, that sort of thing. But we haven’t been effective in actually getting payments. So will you use your expertise in doing this?’”
These forms of “expertise,” however, have often been considered more like forms of harassment, which is why, in 2010, the Fair Debt Collection Practices Act (FDCPA) was amended to restrict the means and methods by which collection agencies can contact debtors, according to Investopedia.com. “They’re trying to brow-beat consumers into paying their bills when they don’t have the money to do it, ” admits Foehl.
It’s at this stage in the process that your delinquent payments are eligible to be reported to the credit bureau via the collection agency. “Creditors usually don’t charge off a debt and turn it over to a collection agency until 180 continuous days of non-payment have passed, so you may have at least six months before a collection or charge off shows up on your credit report,” according to Investopedia.com. “However, each month the creditor can mark the debt as late, from 30 days to 60 days to 90 days to 180 days, further hurting your credit score.”
According to Foehl, the delinquent status of that debt will be on your consumer report for seven years from the date that you’ve defaulted on the actual debt. “But that said, as things age over time, you have a much better opportunity of being extended credit again, even if you have negative information on your consumer report,” he says. “So if you’re getting close to that seven years, you have a better shot at reestablishing credit than you would if it was from two years ago.”
Level Three: Your Creditor Decides Whether or Not to Sue You
The next step in the process, if the debt remains unpaid, is legal action. “Typically what happens at this point is the debt collector will return the debt to the creditor, then the creditor makes a decision as to whether or not they want to file a lawsuit to collect the debt,” says Foehl. “They look at the information they have available to them to determine whether or not it makes sense to file a lawsuit or not.”
That decision, according to Foehl, has a lot of factors involved in it, “like, does there seem to be some ability to repay? What does filing a lawsuit in the particular state look like?” he says. “There are costs and fees associated with that — does it look like [it will be worth the cost to collect]?”
If the creditor decides to pursue legal channels, the law firm they hire will reach out to the consumer before the lawsuit is filed. They will announce, “‘Hey, look, we’ve got this debt,’” says Foehl. “‘This is pretty serious. Contact us because maybe we can work something out here.’ Then what happens is, if the attorney gets in contact with the consumer, they’re trying to figure out if the consumer have any ability to pay. Because the reality is, if it seems like there’s zero ability to pay, by and large, it doesn’t make sense to file a lawsuit.”
Which checks out: If the person has no ability to pay their debt — they don’t have assets, they don’t have a job — you’re not going to get anything out of it, says Foehl, “and you just wasted time and a lot of money getting that judgment for nothing.”
In cases in which a creditor does file a lawsuit and they go to court and get a judgment, at that point, the creditor can do things like garnish the person’s wages, if they’re working. “Or you can also, in many states, garnish a bank account where a person has a bank account with funds in it,” says Foehl. “The bank then forwards the money to the creditor. Now, of course, in most states that do these things, there are certain limitations on what you can do — like, you’ve got to be able to provide for the necessities of life and those things [before your wages or bank account will be garnished].” In the most extreme cases, people who’ve been sued in court over their debt and missed their court dates have been sent to jail — more on that later.
Confounding all this somewhat is the fact that, eventually, the statute of limitations will run out as it relates to that debt. “Each state has a statute of limitations related to its contracts and debts, meaning that after a period of time, once that statute of limitations period expires, the consumer has a defense to any legal action that is brought,” says Foehl. “So, for example, let’s say the statute of limitations in a state is six years — every state has a different limitations period, but let’s say six years — after that, the reality is that, in accordance with state law, that person won’t have to pay that debt, even though that debt is duly owed.”
However, according to The Balance, debt collectors, creditors and debt buyers can still pursue you for a debt even after the statute of limitations has passed. “This may include sending letters, calling you and listing the debt on your credit report if it’s in the credit reporting time limit,” it states. Additionally, “some debt collectors may sue you even after the statute of limitations has passed,” per the same report in The Balance. “Their records may be different from yours or they may hope you’re unable to prove that the debt is no longer legally enforceable.” Still, according to Bankrate.com, it’s vital that you “don’t skip your court date because you believe you can’t legally be forced to pay an old debt.” “If you don’t appear in court and defend your case, a judge may rule in favor of the debt collector,” their report reads.
In some of the worst cases, people who didn’t appear in court to defend themselves against a debt collector — either because they were unaware, or unable to stand up for themselves before a judge — did, in fact, end up in handcuffs. “One woman recalled how, at four months pregnant, she had reported a money order scam to her local sheriff’s office only to discover that she had a warrant; she was arrested on the spot,” reported ProPublica last month, in its feature on medical debt collectors. “A radiologist had sued her over a $230 bill, and she’d missed one hearing too many. Another woman said she watched, a decade ago, as a deputy came to the door for her diabetic aunt and took her to jail in her final years of life.”
As a side note: If you’re thinking of holding out on your federal student loans and disappearing for six years, you may want to reconsider that plan. According to NerdWallet, the six- to 10-year statute of limitations (which again, vary from state to state) only applies to private loans. Even then, Foehl tells me that once the creditor gets a legal judgment, the judgment typically has a longer expiration date (around 10 years) and can be renewed. In other words, by way of a legal judgement, the statute of limitations can be extended. So the short version is, successfully hiding/running away from your debts is next to impossible.
Level Four: Your Creditor Sells Your Debt
“I do need to mention that there is, I would say, a sidestep,” says Foehl. “Sometimes, what creditors will do instead of filing lawsuits is sell the debt to a debt buyer. This is a situation where the creditor says, ‘Look, we’re not going to go through this process of trying to hire an attorney and do all this. We’re going to cut our losses here.’” At this point, the creditor takes this debt, along with other people’s debt that they’re owed, package them up and sell them to a debt buyer. “The debt buyer will become the new creditor, because now the debt buyer will own those debts,” says Foehl. “And the original creditor will get paid some money, rather than getting paid zero.”
To be clear, the difference between a debt collector and a debt buyer is that a debt buyer has purchased the debt, and has therefore invested in some amount of it, while the collector is the client of a creditor who gets paid only if they collect. “This is something where consumers can get confused as well,” says Foehl. “These are the details that you need to be able to read carefully and understand what’s going on, because what can happen is debt buyers, after they purchase debt, and if they don’t collect it, they could sell it to a secondary debt buyer. The secondary debt buyer could sell it to a tertiary debt buyer. And so now it becomes very difficult for consumers to keep track of who they actually owe.”
When it’s hard to keep track of who you owe, Foehl tells me, that’s when a debtor opens themselves up to the very real possibility of unscrupulous actors coming in and saying that you owe them a debt that you actually don’t.
Case in point: Earlier this year, Atlantic reporter Olga Khazan noted one Floridian, who in 2018 wrote, “Pendrick Capital has been attempting to collect on an erroneous medical debt for at least a year now, despite multiple disputes to various bureaus and collection companies. Each time I dispute the debt, the account is deleted by the collection company only to be replaced by another. … The collection merry-go-round continues, and my credit suffers.” Khazan also found that Pendrick Capital, in a different case, allegedly tried to collect on a debt from the wrong woman. “In another case, a debt collector hired by Pendrick allegedly called a woman more than 30 times in an attempt to collect $892 in medical debt, even though she had already filed for bankruptcy.”
Level Five: Debtors’ Prison
In the introduction, I mentioned that in the U.S., debtors’ prisons have been outlawed since the early 1800s. However, there are exceptions. According to the Marshall Project, “There are two types of debt that may lead to involvement in the criminal justice system. In the first category are credit card debt, unpaid medical bills and car payments, and payday loans and other high-interest, short-term cash advances, which indigent borrowers rely on but struggle to repay.”
Per the ACLU, these proceedings — called “judgment debtor examinations” — see those who owe a debt summoned “to answer questions about their wages, bank account balances, property and assets.” “Debt collectors use these responses to take other steps to collect on the judgment,” reports the ACLU. “If the debtor doesn’t appear in court for the judgment debtor exam, creditors can ask the judge to issue a civil warrant for the debtor’s arrest.”
To that end, Foehl tells me that there are numerous jurisdictions that give anyone, including debt collectors, the ability to enforce a legal judgment that may lead to a person’s imprisonment. In a 2011 article in the Star Tribune, for example, Chris Serres and Glenn Howatt reported that in Minnesota — which has some of the most creditor-friendly laws in the country — the use of arrest warrants against debtors had jumped 60 percent over the previous four years, with 845 cases in 2009. “Three debt buyers — Unifund CCR Partners, Portfolio Recovery Associates Inc. and Debt Equities LLC — accounted for 15 percent of all debt-related arrest warrants issued in Minnesota since 2005,” per their report. “The debt buyers also file tens of thousands of other collection actions in the state, seeking court orders to make people pay.”
According to ConsumerAdvocates.org, if the debtor fails to appear for their debtor examination, the creditor then has the right to request a body attachment (i.e., they’re forced to appear in court). “Many argue that body attachments aren’t issued for failure to pay a debt, but instead for failure to obey a court order,” reports ConsumerAdvocates.org. “However, courts don’t issue body attachments for all debtors who fail to obey these court orders; body attachments are only issued if a creditor requests it be issued.”
In some of the cases mentioned in the ACLU report, the debtors were sentenced to anywhere from 10 to 30 days in prison for failure to appear for their debtor examinations, with their bonds set as high as $1,250. Thankfully, in most states, “cash bail posted as a result of the citation may be ordered payable to the creditor to satisfy the judgment,” per the same report.
The far more likely type of debts that could lead to imprisonment, though, are termed “criminal justice financial obligations.” “Typically it’s criminal justice debt,” says Karin Martin, a crime policy specialist at the University of Washington’s Evans School of Public Policy and Governance. “So it’s unpaid fines, fees, restitution or something else a court has ordered as part of a punishment after conviction. It’s typically the starting point of somebody who ends up incarcerated for unpaid something.”
According to The Marshall Project, the first way in which a person could end up incarcerated over unpaid debt is if they fail to show up at debt-related proceedings. “In these cases, the crime isn’t failure to pay, but rather ‘failing to appear in court,’ ‘disobeying a court order’ or ‘contempt of court,’” per their report.
The second way is essentially just classism, thanks to a 1983 Supreme Court case (Bearden v. Georgia) that didn’t differentiate between debtors who are too poor to pay — “indigent” — and those who “willfully” refuse to do so even if they’re financially able. “By leaving this mens rea determination to individual judges, rather than providing bright-line criteria as to how to make the distinction, the justices left open the possibility that a local judge with high standards for ‘indigence’ could circumvent the spirit of Bearden and send a very, very poor debtor to jail or prison,” explains The Marshall Project.
To that end, in an extensive study on the criminalization of private debt, the ACLU found that there are tens of thousands of arrest warrants issued annually for people who failed to appear in court to deal with unpaid civil debt judgments. The total number is unknown, “because states and local courts don’t typically track these orders as a category of arrest warrants.”
However, “In a review of court records, the ACLU examined more than 1,000 cases in which civil court judges issued arrest warrants for debtors, sometimes to collect amounts as small as $28.” In one case, a mother of three was arrested in front of her children for failing to appear because she was recovering from thyroid cancer. In a different case, a woman was arrested while caring for her terminally ill mother. “A debt collection company had bought a six-year-old rental debt her landlord claimed she owed after evicting her from her trailer home and throwing out her belongings,” per the same report. “She was jailed overnight. Her mother died two days later.”
Martin tells me that while she personally hasn’t come across any evidence of mendaciousness on the part of legislators — that is, intentionally trying to target poor people with these sort of laws — she does see it as “a sort of myopia.” “They’re thinking they’re going to get short-term revenue and they don’t take into account the long-term costs,” she says. “Then we end up in a situation where people can’t pay what they owe. That’s when bad things happen.”
While some of the above examples are extreme cases, remember that this is 2019, meaning that debtors’ prison was supposedly abolished more than 150 years ago. Yet the most desperate people continue to be enslaved by the vestiges of a feudal system, of which our modern debtors’ prison is but one example. While we’re all busy arguing over student loan forgiveness and debt cancelation, it’s surely also time to acknowledge the flagrant inequities present in the current system, and work on changing the laws that imprison people for the crime of not being rich.
Andrew Fiouzi
Andrew Fiouzi is a staff writer at MEL.
