What Is Debt Peonage?

Debt peonage, also known as debt servitude, is a method of debt repayment in which an individual makes his payments to a creditor by physical labor. This form of payment was more common in the past when economies were driven by crops and physical labor. It does, however, continue in many underdeveloped areas of the world.

The Facts

Paying a debt with physical labor is neither a foreign nor a disturbing concept. What sets debt peonage apart from regular work is the element of entrapment. In cases of debt peonage, a system is in place to prevent the worker from escaping his work obligations. An individual is sometimes lured into debt by false promises and then trapped by the legal system. A child working to pay off the debts of a parent is also considered debt peonage.

Slavery

After slavery was abolished in 1865, many former slaves were forced back to the plantations they once suffered on. Newly passed laws in the South called "The Black Code" prohibited the slaves from leaving the land without first gaining a "pass" from the landowner. Instead, the former slaves were forced to work the land to pay for room and board. Given that a landowner had no incentive to offer any former slave a pass to leave, these men and women were forced back into the life they were legally free from. Once slaves under the law, they became slaves again under debt peonage.

Prostitution

Debt peonage continues to be an issue for young women in less-developed countries. In the search for a better life, some young women opt to travel to more developed areas of the world in search of work. The plan is a common one. They wish to make enough money to eventually send for their families. If a young woman is particularly unfortunate, she may stumble upon a "benefactor" willing to finance the trip in exchange for a short period of work upon her return. The woman discovers too late that the bill is too much to pay with menial labor. The benefactor offers a shorter period of time spent in prostitution as an alternative, which the woman often feels she has no choice but to take.

Child Labor

In Nicaragua in the late 1800s and early 1900s, landowners practiced a form of debt peonage in which entire families were forced into labor to repay the debts of one family member. The landowner's reasoning was that if the family member who owed the debt were to sicken or die, the debt would not go unpaid. This often resulted in children performing hard labor daily. In extreme cases, men would contract out their own wives and children to work for their creditors in lieu of themselves.

Bankruptcy

Debt peonage, although long since abandoned in the United States, is often compared to the "restructuring" requirement of Chapter 13 bankruptcy. Under restructuring, an individual's debts and assets are evaluated. The court then assigns a strict budget on which the individual is allowed to live. The remainder of his income must go to his creditors. This continues for three to five years. The bankruptcy itself damages his credit so severely that when he is finally eligible for loans, the interest will be too much to handle. Other than purchasing the barest of necessities, the individual does not benefit from his labor. He is also trapped in his current financial position for long after his budget improves because of his credit rating. This makes him a textbook example of the travails of debt peonage.