Got Debt? In Indiana, Here's How You Could Wind Up In Jail

CROWN POINT, IN — In 2012, Denise Zencka couldn’t work for four months while she recovered from treatment for thyroid cancer. Zencka, an Indiana mother of three young children, was living with her parents in Florida at the time. She didn’t know about, and was unable to attend, small claims court hearings in her home state over unpaid medical bills — payments she couldn't make.

Three arrest warrants were issued for civil contempt because she failed to appear in court. She had filed for bankruptcy in October 2012 and her attorney sent notices to the Lake County Sheriff’s office in Indiana notifying them of the filings and the automatic hold on collections.

But Zencka became one of thousands of debtors arrested and taken to jail every year. In fact, the American Civil Liberties Union said, roughly one in every three American adults has a debt that has been turned over to a private collection agency.

In a new report that reviewed more than 1,000 cases across the country, the ACLU found that while contempt power is “inherent in all courts," laws in 44 states — including Indiana — and the federal rules regarding civil and bankruptcy procedure allow individuals with debt to be arrested and jailed for contempt of court.

In Indiana, debtors can be ordered to appear before the court to answer as to non-exempt property subject to execution or proceedings supplemental to execution. Failure to appear may result in contempt. In such cases, courts can issue writs of attachment, which direct the sheriff to take the debtors into custody. Incarcerated debtors must be brought before the court that issued the writ within 48 hours, excluding weekends and holidays. Courts usually set a cash-only bond in these cases.

Other states that allow the practice include California, Florida, Georgia, Illinois, Massachusetts, Michigan, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Texas and Virginia.

“The private debt collection industry uses prosecutors and judges as weapons against millions of Americans who can’t afford to pay their bills,” said Jennifer Turner, author of “A Pound of Flesh: The Criminalization of Private Debt,” and principal human rights researcher at the ACLU. “Consumers have little chance of justice when our courts take the debt collector’s side in almost every case — even to the point of ordering people jailed until they pay up.”

Blacks and Latinos are most harshly affected by the practice due to what the ACLU calls "longstanding racial and ethnic gaps in poverty and wealth."

The ACLU estimated that more than 1 million consumers each year receive letters threatening criminal prosecution and jail time if they do not pay up. More than 95 percent of debt-collection lawsuits end in favor of the collector, mostly because the debtor doesn't offer up a defense.

So-called “debtors prisons” were outlawed in the 1800s. But debt collectors still find ways to punish debtors using the criminal justice system. Collections agencies ask judges to issue arrest warrants over failed court appearances stemming from outstanding civil debt judgments. In many cases, debtors don't even know they were sued and were never notified that they were expected in court.

Though tens of thousands of arrest warrants are issued every year, the total number remains a mystery because states and local courts don't usually track them as a category of arrest warrants.

Some of these debts are for as little as just a few dollars.They include past-due car payments, utility bills and student loans. Sometimes, as in Zencka's case, they can be for medical bills.

Even though Zencka’s attorney told the county sheriff’s office she filed for bankruptcy, authorities still visited her home just three months later. Zencka, dressed in pajamas, was arrested in front of her 12-year-old daughter and two sons, ages 8 and 4.

Her treatment at the Lake County Jail defied common decency, according to the ACLU, which said she was held overnight, initially in a large cell with several men but later in a men’s mental health unit. The walls were transparent, so male prisoners could watch her every move — even as she used the toilet.

There, Zencka said she experienced verbal abuse and witnessed lewd and traumatic behavior. One man even wiped his poop on the wall of their shared cell. She was also refused medicine and feminine hygiene products, she said.

The ACLU is pressing for reform to prevent more people from going through similar ordeals.

“These abusive practices raise grave due process, equal protection, and human rights concerns, yet they remain largely unchecked because there is minimal government oversight and scant protection for debtors under federal and state laws,” the civil rights group said in its report.

State attorneys general, state courts, legislatures, the federal Consumer Financial Protection Bureau and congressional lawmakers have the power to protect consumers from such forms of intimidation and threats, the ACLU said. For example, state legislatures can pass laws that ban courts from issuing arrest warrants in debt collection proceedings.

“Until arrest warrants are prohibited, at a minimum, legislators should require that defendants be released on their own recognizance upon service of the warrant and not taken into custody or required to pay bail,” the report said.

Mike Cardoza, a consumer financial protection attorney based in San Francisco, told Patch people are being arrested and confined not because they owe money, but because they didn’t comply with a court order. When that happens courts have just one power.

“That is to bring the person before the court and confine them until they comply,” he said. “It's not the actual debt that is that's the reason they're going to jail. It's the fact that they are getting these notices.”

The jailing isn’t punitive. It’s coercive.

“These are civil cases so there’s no punitive intent as long as you do what the court says you gotta do, then you get out of jail,” Cardoza said.

Collectors use attorneys to sue people for money because they know it’s confusing and consumers will be intimidated. Their bank accounts can be seized. A lien can be placed on their house. And their wages can be garnished, meaning a portion of their paycheck would automatically go to the collector.

“So suing somebody for a debt is pretty attractive and the majority of folks don't respond because either they didn't get notice in the first place, or they did and they're just too freaked out and don't know what to do,” Cardoza said.

The debt collection industry is “totally systemic,” he said, and collectors don’t think about the individuals they’re hurting.

“They’re just knocking out thousands of collection lawsuits a month. Everything becomes a math equation and frankly there’s not enough profit in the industry to be compliant with the law 100 percent of the time,” he said.

Debts are bought for pennies on the dollar and those entities hire third-party debt agencies to collect. The collector is entitled to collect the entire amount on the original debt.

Those agencies determine who is most likely to repay their debts and then — armed with phones and letters — befriend or intimidate them into paying, Cardoza said.

Collectors threaten property owners with a lawsuit, for example, and then sue them. If they get no response, the debt buyer then places a lien on the debtor’s property.

Then it’s on to the next one.

Thousands of default judgments are issued or granted every day. What’s most frustrating for Cardoza is that people simply don’t know their rights.

People have the right to a completely accurate credit report — something studies say isn’t true for as as many as 20 percent of Americans. When it comes to debt collection, people have the right not to be harassed or threatened with things that aren’t going to happen.

“I see that a lot,” he said. “Like, oh, we’re going to take you to court. Well, you can’t because that’s too old. Or we’re going to report you to the credit bureau. Well, you can’t because, again, too old.”

Debt collectors also call debtors and spoof the caller ID to make it look like a relative or neighbor is calling to trick the person into answering. That’s illegal — collectors aren’t meaningfully disclosing their identity, Cardoza said. Collectors also deploy autodialing machines.

It gets really bad this time of year, when people start receiving tax refund checks.

“Right about now, all the collectors are watching the Walmart report about how many treasury refund checks are being cashed each week because they want to find out when the IRS is dumping out the refund checks,” Cardoza said.

“That starts the printing presses and all this old debt goes on the letters of ‘hey, you could settle your debt for 50 percent off! Just respond to this letter.”

Here’s what the letter doesn’t say: The debt is too old and the person can’t actually be sued on it. It also doesn’t say that once a payment is made, that restarts the statute of limitations, meaning the debtor could then be sued on their old debt.

“In California, if your debt is older than four years old and you haven’t been sued on it, they can’t sue you for it,” Cardoza said. “But once you pay like five cents or a penny, boom! It restarts the statute and you can find yourself in court.”

Photo credit:Richard Drew/Associated Press