The Return of Debtor Prisons

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  When the Wall Street bankers ran up hundreds of billions of debt they could not pay back they convinced the American taxpayers (via the government) to bail them out, no questions asked.

  However, when the American taxpayer runs up a little debt, not only is there no bailout, there is no mercy either.

 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….

   “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.”

 Frequently the bail is set at the exact same amount as the debt owed. While this makes it easy for judges, it is also a tacit admission that these are de facto debtor prisons.

 Many state constitutions bar imprisonment for debts, yet in many cases the judges in these states don’t seem to care. Some seem eager to side with the powerful against the weak.

    The laws vary by state, as does enforcement.

 “We have created a de facto debtors prison system in the United States that is largely unconstitutional,” said Judith Fox, a law professor at Notre Dame Law School. “In some parts of the country, people are so fearful of arrest they are scrambling to pay money they might not even owe.”

   In states such as Indiana and Illinois, people are being locked up for not making court-ordered payments. Known as “pay or stay,” it can mean days in jail and multiple arrests for the same debt. Some legal experts say the practice is unconstitutional because the arrest is directly linked to the failure to pay a debt.

  Jack Hinton of Kenney, Ill., was sentenced to jail indefinitely in January after he fell behind on a court order that he pay $150 a month on a debt of $6,440.

  According to a court transcript, Hinton, then a self-employed roofing contractor, said he broke his neck and back in a fall from a roof and filed for disability. The judge got upset after learning that Hinton used $1,000 for other bills rather than his court-ordered payments. Hinton was ordered to the county jail indefinitely until he could come up with $300.

  After three hours in a holding cell, his wife got him released by borrowing $300 on a credit card. He is considering a challenge to the ruling on constitutional grounds. “I couldn’t pay, and I was stuck in jail until I did,” he said. “How is that any different from debtors prison?”

 There are two issues involved here.

The first issue is the idea that the poor have an obligation to pay their debts, an obligation that the rich and powerful don’t have. This quick video of David Walker, the CEO of the Peter G. Peterson Foundation, founded by billionaire financier Peterson as a think tank on fiscal issues, is a good example. He openly pines for the days of debtor prisons for the poor.

 The other issue involves the predators of society. People so immoral and callous that they see no problem with making a living by taking advantage of people undergoing hardship.

  Currently 29 states allow city governments to bundle up tax debts to investors for pennies on the dollar. The purchasers then assume the responsibility of collecting the unpaid debt, and the opportunity to foreclose on property who’s owners can’t pay.

  These tax debts include tax liens for unpaid local taxes or utility bills. Of course tax debt is only a small percentage of the debts involved. In most cases it bills from cellphone providers and credit card issuers. Most of these bills are just a few thousand dollars.

 Valentine had inherited a home in West Baltimore from her father, who died, after a long struggle with Alzheimer’s, in 2003. The house was free and clear, but many of the utility bills had been left unpaid.

  Struggling with chronic depression after taking care of her dying father, Vicki was soon dealing with unemployment as well. In 2006, Vicki paid $100 on an outstanding water bill of $462.28. That figure shot up to more than $700 after the city added interest, processing charges, and property taxes.

   Under severe financial strain, Vicki filed several legal challenges, which delighted the firm that had purchased the lien, since this permitted them to tack on additional legal costs. On September 19, 2008, a judge ordered Vicki to pay $3,603.41, or lose a home that was already bought and paid for. She didn’t have the money. So last February, the local sheriff’s department seized Vicki’s home on behalf of Montego Bay Properties, the entity that held the lien following at least two post-auction transfers of ownership.

  Collection agencies typically have profit margins of 10-15%. In comparison, Walmart’s profit margins are just over 5%.

  It shouldn’t really surprise anyone that the despicable, bottom-feeding characters that run these collection agencies have little regard for the law that they abuse to make profits.

 Rosenberg, who profited handsomely on the debts of others, is no stranger to bad debt himself. “Over the past decade,” reported the Enquirer in 2003, “Rosenberg’s name has appeared on Ohio income tax liens, an overdue notice for Vermont real estate tax, and a lawsuit for an unpaid auto loan.”

  Unlike many of his victims, Rosenberg has never felt the cold steel of handcuffs biting into his wrists. Given the pervasive perversity of our times it’s not surprising to learn that Unifund, which is able to suborn police and courts into doing its bidding, is a criminal enterprise.

  During the past decade, Unifund has settled several class-action lawsuits asserting that the firm routinely engages in illegal practices – such as imposing bogus legal fees and collecting on debts beyond the statute of limitations. In one settlement, Unifund was forced to pay Queens resident Jose Luis Muniz an undisclosed sum after it fraudulently attempted to collect on a $21,000 credit card debt Muniz had paid off ten years earlier.

Unifund was known to hire professional liars to read a computer screen, and sign affidavits that they had personal knowledge of the authenticity of the accounts.

  Unifund frequently sues families for credit cards they didn’t own. Some will not know they are being sued until their wages are garnished.

Unifund, which earned the nickname “Unifraud”, was later bought by the infamous Zises Brothers. During the 1980’s, the Zises Brothers ran a pyramid scheme-cum-tax shelter, funded by junk-bond king-turned-felon Michael Milken, in which they managed to sell their holdings for a tidy profit before defaulting on their debts. Other shareholders were not allowed to sell their stake in AT Integrated Resources Inc.

  Using political ties to the neo-conservative establishment (they are major funders of Israel’s Likud Party and promote the building of West Bank settlements), they managed to arrange a settlement years later in which they paid their creditors pennies on the dollar. They used their profits to buy Unifund, where they would get rich punishing defaulters who are poor and not politically connected.

 How appropriate that the debtors prisons for peasants and serfs are working with master criminals?


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  1. gjohnsit
  2. pinche tejano

    This is well worth the read, to show how things have not change a bit in 300 years, except for the prison part.


    The frantic Duer begged Hamilton to block a suit that would cripple his power to borrow. For the secretary of the treasury, it was a painful clash between private friendship and public duty. Hamilton met the test, grimly consigning Duer to his fate: “Tis time there should be a line of separation between honest men and knaves.”

    On March 9, 1792, Duer failed to meet a number of payments on loans, and his paper pyramid began to crumble. He claimed that the notes had been issued by his agent in his absence and required “investigation.” No one believed a word of this, but it bought Duer a little more time.

    By March 15, 6 percents were in precipitous decline and deferreds were also showing signs of galloping anemia. The bears were throwing all the stock they could find into the market to accelerate the downward plunge. Duer faced a crescendo of demands for payments of stocks that would soon be delivered, and the falling market combined with the government’s lawsuit made it impossible for him to raise another cent. He was soon in serious danger of physical harm from what one speculator called “the lower class of his creditors,” who were threatening that if they did not get their money they would “rise to extremities.”

    On March 23 Duer took refuge in the city jail-a place to which most debtors went reluctantly, but which he now saw as far safer than his mansion on Broadway. In a letter a New York businessman ticked off the names of a veritable gallery of top merchants to whom Duer owed large sums- $80,000 to one man alone. He also owed “shopkeepers, widows, orphans-butchers, carmen, gardners, market women.” Another writer reported: “The town has rec’d a shock which it will not get over for many years. Men look as if some general calamity had taken place.”

    Soon one of Duer’s partners, Walter Livingston of the powerful Hudson River Valley clan, joined him in debtors- prison. He had cosigned 28 of Duer’s notes for a total of $203,875.80. Stock prices continued to fall in spite of Hamilton’s attempts to stabilize the market with government money. Public unrest grew. On April 15 Alexander McComb defaulted on half a million dollars in stock purchased from the bears. The following day he joined Duer and Livingston in the city prison.

    Now if everyday people go to debtor’s prison, then so should the tycoons of Wall Street.

    Rule of law, or we must accept we live under a corporate aristocracy.

    Either/or, no grey area here.  

  3. taoskier

    So, Unifund rips off Americans and the money goes to Likudniks. Not surprising, a lot of scams go on in the USA that end up supporting right-wing thugs in Israel, it’s just not reported in the MSM.

    Likud USA Gala

  4. joeshwingding

    Don’t be surprised if this becomes a national trend. The next leg down in Housing is upon us, and banks do not want to take the full hit for the losses.

    In nonrecourse states, banks can pursue individuals for enabling purchase loans. They can go after 2nd mortgages or refis that were not for the purpose of the initial purchase. In essence they want their money back!

    After the bank foreclosed on Fernando Palacios’s Gainesville home in March, he thought he was done with what he described as the most stressful financial situation of his life.

    The bank sold the home for far less than Palacios owed on it, as often happens with foreclosures. What Palacios did not see coming was the letter from his lender demanding that he pay the shortfall: $148,064.02.

    Over the past year, lenders have become much more aggressive in trying to recoup money lost in foreclosures and other distressed sales, creating more grief for people who thought their real estate headaches were far behind.

    Gretchen Somers said she and her husband understood the risks last year when they completed a “short sale,” a transaction that allowed them to sell their Manassas home for about $150,000 less than they owed on it.

    Last year, their first lender and their home-equity line lender granted permission for the short sale. But the second lender reserved the right to come after the couple. Six months later, a collection agency called demanding $85,000 for related losses.

    Don’t think for a minute that the banks are going to eat this one. What’s to stop them from changing the rules in the self devised “Walkaway” program? You will be tied to your debt until you die if they get their way. Just like the bankruptcy bill.  

  5. Diane G




  6. bigsurtree

    anything. And then use the same court for leverage (with a compliant judge) to either handcuff the debtor with more payment or handcuff him right to jail.  

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