Jail Time for Unpaid Debt?

CalWatchDog’s John Seiler has this story of a Stockton man who was arrested, dragged from his home by a SWAT team, because of a missed court appointment over unpaid student loans from his estranged wife.  The Minneapolis Star Tribune reports that arrests and jail time over unpaid debt is on the rise.  It begs the question: if you are delinquent in paying your student loans and credit card bills, could you be dragged away in handcuffs.  In six states now, you can.

Seiler may have jumped the gun a bit as law enforcement officials say the sting was part of a larger investigation into financial aid fraud.

From Seiler’s story: “The evidence that America now is a full-blown police state keeps pouring in. Governments short of revenue even are assaulting those with alleged school-loan problems.

In Stockton, original reports were that local police launched an assault on a man’s house, searching for his wife. Her offense: she didn’t make her federal student-loan payments.”

…

It may be some days before the exact nature of what happened becomes clear. However, we do know already:

1. A raid occurred involving numerous heavily armed officers who assaulted Wright’s home as if he were a Taliban member in Afghanistan.

2. Given that he was not an armed criminal, only allegedly involved in a financial impropriety, the size and potency of the assault on his home was far in excess of what was necessary to arrest him. Just a few years ago, this situation would have been dealt with by plain close officers knocking on his door and issuing him a subpoena or a search warrant.

3. Governments at all levels refuse to disclose what really was going on even to respected members of the meida.

Federalization

This raid also shows how the federal government now has completely taken over our lives. Localism is dead. A federal program that seems to most people to be benign, promoting learning and jobs skills, turns out to be another police-state enforcement agency. Maybe more people now will wish that President Ronald Reagan had fulfilled his 1980 campaign promise to complete abolish the U.S. Department of Education (De-Ed).

What America’s founders feared, that state and local governments would be dissolved into a gigantic edifice of oppression, has occurred — enforced even against alleged student loans improprieties.”

But after Seiler filed his initial story filled with outrage, new details emerged suggesting that there was more to the story than just unpaid student loans.

From a story on Fox News: 

A California man who initially claimed to a local television station that he was roughed up by “SWAT team” members who allegedly battered down his front door to execute a search warrant related to his estranged wife’s unpaid student loans was targeted due to an ongoing probe into alleged financial aid fraud.

Local law enforcement officials have thus far not commented on the Stockton man’s claim to ABC News 10/KXTV that he was grabbed by the neck and placed in handcuffs in back of a patrol car for six hours as his three children looked on during execution of the search warrant on Tuesday.

Public information officers for the Stockton Police Department and the San Joaquin County Sheriff’s Office did not return multiple messages seeking comment in connection to reports of the raid at a Jonathen Street residence occupied by Kenneth Wright, his estranged wife and three children.

In a statement to FoxNews.com, Education Department Press Secretary Justin Hamilton confirmed that its Office of Inspector General executed the warrant with the presence of local law enforcement authorities.

“While it was reported in local media that the search was related to a defaulted student loan, that is incorrect,” the statement read. “This is related to a criminal investigation. The Inspector General’s Office does not execute search warrants for late loan payments.”

The Minneapolis paper reports people are being arrested for missing court dates related to credit card defaults and missed payments.  From the story:

“It’s not a crime to owe money, and debtors’ prisons were abolished in the United States in the 19th century. But people are routinely being thrown in jail for failing to pay debts. In Minnesota, which has some of the most creditor-friendly laws in the country, the use of arrest warrants against debtors has jumped 60 percent over the past four years, with 845 cases in 2009, a Star Tribune analysis of state court data has found.

Not every warrant results in an arrest, but in Minnesota many debtors spend up to 48 hours in cells with criminals. Consumer attorneys say such arrests are increasing in many states, including Arkansas, Arizona and Washington, driven by a bad economy, high consumer debt and a growing industry that buys bad debts and employs every means available to collect.

Whether a debtor is locked up depends largely on where the person lives, because enforcement is inconsistent from state to state, and even county to county.

In Illinois and southwest Indiana, some judges jail debtors for missing court-ordered debt payments. In extreme cases, people stay in jail until they raise a minimum payment. In January, a judge sentenced a Kenney, Ill., man “to indefinite incarceration” until he came up with $300 toward a lumber yard debt.

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

How often are debtors arrested across the country? No one can say. No national statistics are kept, and the practice is largely unnoticed outside legal circles. “My suspicion is the debt collection industry does not want the world to know these arrests are happening, because the practice would be widely condemned,” said Robert Hobbs, deputy director of the National Consumer Law Center in Boston.

This all leads to a “can this happen here” in California?

California law is still a bit unclear here, but if these conditions exist, it is possible to be dragged away in handcuffs for not paying your bills. From the site DebtPrison.net, these details:

Here’s how not paying a debt CAN lead to your arrest.

1. The creditor sues you in civil court for a debt.

2. The court hand-delivers a summons to you from the court indicating you are being sued and need to appear on the scheduled date.

3. You fail to show up in court or respond to the court summons.

4. The creditor then receives a default judgment against you for the amount of the debt.

5. The court mails you a statement indicating that a judgment was placed against you for the debt.

7. You ignore the statement and make no effort to contact the court or the creditor.

8. The court may then issue a bench warrant for your arrest (if the creditor is aggressive)  to force you to show up and explain why you’ve made no effort to satisfy the judgment (this is becoming more common).

It is possible that you never received the original summons (was given to the wrong person) and that you were unaware that a judgment was placed against you (because you moved or something).

It could also be that you were aware of these things and didn’t take them serious.

Either way you can end up getting arrested for not responding to the court.

Remember, the court isn’t interested in wasting everyones time and locking innocent people in jail. The arrest warrant was the last option for the court to force you to comply with the judgment that was placed against you. This doesn’t even mean that you will have to pay. It just means that the court needs some communication from you at least indicating that you are attempting to comply with the court’s judgment. A creditor has the right to determine why you haven’t tried to satisfy the judgment. And that can include the court questioning you about income and assets.

It’s important to note, even filing for bankruptcy protection will not absolve you from federal student loans; there’s one small exception and that is if you are physically unable to work.

From Lawyers.com:

Student loans are tough. They can follow you for a long time after graduation and can be hard to manage with other debts you take on. Generally, you can’t get rid of student loan debt in bankruptcy. This is non-dischargeable debt, which means it remains after bankruptcy and you must pay it.

However, there is one exception you should know about. Some student loans may be considered an undue hardship, and can be discharged, or eliminated, if the loan payments put an extreme burden on you or your family.

The first step to filing for undo hardship is to file a separate motion with the court and then meet with the judge to explain your hardship. This isn’t easy to do. You have to show three things to prove undue hardship:

• That in your current situation, you can’t maintain a minimum standard of living and repay your loans
• Your bad financial situation is likely to continue
• You made honest efforts to pay off the loans

It’s almost impossible to show undue hardship unless you’re physically unable to work and your situation isn’t likely to improve in the future. So, if your student loans make up most of your debt, it probably isn’t wise to attempt this unless you’re disabled.