While we no longer have debtor's prisons in the United States, there are specific circumstances in which a debtor might go to jail. These situations are rare and almost always occur because a debtor ignored a court order.
Significance
If you owe a lot of money, you might worry that you're at risk of going to jail; unscrupulous debt collectors may even threaten you with arrest. It's impossible to put someone in jail, however, simply for owing most types of debt. Threats of jail made by third-party debt collectors violate both federal and state laws.
Types
Collecting most types of debt, including loans, credit card balances and medical bills, is a matter of suing someone in court. If a creditor wins its lawsuit, it can use legal means to collect the debt, including putting a lien on your property, garnishing your wages or levying your bank accounts. You can't go to jail simply because you owe a consumer debt. However, refusal to pay certain debts can lead to jail time. For example, you can go to jail if you don't pay your traffic tickets or other court-ordered fines. You can also go to jail for not paying court-ordered child support.
Court-Ordered Appearances
If a creditor wins a court judgment against you, a judge may order you to come to court to submit to a financial examination. This usually consists of making a list of your bank accounts and other assets so the creditor can levy or seize funds to repay the debt. In some areas, judges issue arrest warrants for debtors who don't show up for the financial examination.
Fair Debt Collection Practices Act
The federal Fair Debt Collection Practices Act (FDCPA) regulates the actions of third-party debt collectors, which includes private attorneys and law firms who are in the business of debt collection. It's against the law for a debt collector to threaten you with jail time or arrest if the collection agency hasn't won a judgment against you and you haven't missed any court-ordered appearances. If a debt collector does make such a threat, you can file a lawsuit against that collection agency.
Prevention/Solution
Never ignore communications from debt collectors, even if you're unfamiliar with the name of of your alleged creditor. First request verification of the debt from the debt collector. Paying off legitimate debts is the best way to avoid future problems: Ask for a payment arrangement or, if you have cash available, negotiate a settlement for less than what you owe. If you have no money, talk to a bankruptcy attorney or credit counselor. Don't ignore a lawsuit, and be sure to appear in court if you receive a summons to avoid possible arrest.
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