A few hundred years ago, it was common practice in Europe to limit the freedom of debtors who were behind on their payments until they paid it back. Some debtors were housed in actual prisons plus forced to pay for their incarcerations and pay back their debt by working. Many countries have a specific debtors’ prison history, even the U.S., but most countries abandoned the practice 100-200 years ago.
However, lenders need some kind of mechanism to compel re-payment and governments give themselves the most leeway in collecting on past-due bills.
Expected actions by the state include:
- Garnishing wages
- Seizing money in bank accounts
- Liens on cars, homes, or property
But there are more aggressive collection options that are available to government, depending on the state. For example, past due child support or federal student loans can result in in the state revoking your:
- Driver’s license
- Professional license (teaching, nursing, doctors, etc.)
- Camping or state parks license
- Fishing and hunting license
- Garnishing social security payments
Budget constraints have prompted some municipalities to charge high fees, fines, and surcharges for misdemeanors; more than doubling their cost. If a defendant is unable to pay the fine, they are jailed even though they were found innocent of the criminal offense. Defendants are also being billed for more of the costs of their own trials. According to an ACLU lawsuit, 25% of misdemeanor defendants in Benton County, Washington, serve jail time for unpaid fines. These fines can be hundreds to several thousands of dollars, accruing interest at a rate of 12% per year.
Even a debt to a business can cascade into an arrest. A woman driving in Illinois with her children was pulled over for a broken tail light and was arrested for an outstanding warrant. She had failed to appear in court for a $2,200 judgment against her from a finance company. Another person In New York did not receive a state tax hearing notice because it was mailed to an incorrect address. Luckily, she had enough money in her bank account, that the state seized, to cover the disputed amount (which was later reversed), or she could have ended up being arrested as well.
All of these debt-collection laws are additional reasons for financial literacy, financial stability, and proactively managing all aspects of your financial life.