One of the most pervasive myths about bankruptcy in Michigan is that you can be sent to jail for unpaid debt.
Debt collectors who call and threaten you with jail time or who send you a “warning letter” in the mail threatening jail for unpaid debt do so in violation of Federal law.
However, the notion that unpaid debt can result in jail-time is not entirely false.
There actually are specific circumstances where, indirectly, a debt collection effort in Michigan can result in your jailing.
This Article will discuss the truths and untruths of threats of jail-time for unpaid debts.
Threats of Jail-Time for Unpaid Debt under Federal Law
A debt collector who threatens you with jail or with arrest for failure to pay a debt is lying. Whether they are in violation of Federal law depends on who is making the threat and whether or not you have filed for bankruptcy before that moment. In recent years, there have been a rash of collection scams in which criminals are contacting unsuspecting consumers, usually by phone and are threatening them with imminent arrest unless their account is paid immediately.
First, as to the lying part. Creditors and debt collectors have no legal authority to have you arrested by municipal, county, or Federal authorities for any crime related to unpaid debt. (With the exceptions of tax debt, child support payment issues, and debt incurred through fraudulent means such as a pyramid scheme or other scam or hoax.)
Other than with the regard to the exceptions noted above, there is no such “crime.” Unpaid debt results from a failure to repay funds loaned or for services provided pursuant to some contract.
Breach of contract claims are civil legal issues. They are not subjects of criminal law.
If a creditor believes you have breached your contract with it, its only legal recourse is to sue you for an order requiring that you repay the money or allowing it to collect the debt through legal means under Michigan state law.
That’s it. The creditor has no ability to throw you in jail for unpaid debt.
To the contrary, a creditor who makes such a threat is very likely to be violating Federal law itself.
The Fair Debt Collections Practices Act (FDCPA)
The Fair Debt Collections Practices Act, or FDCPA, is a Federal statute that prohibits certain practices in debt collection.
Among the actions prohibited by the FDCPA are untrue threats of arrest or jail-time for failure to pay debts owed.
Violations of the FDCPA provide you a cause of action that allow you to sue the debt collector in Federal Court for $1,000 for each violation—plus your expenses, including attorney’s fees.
The problem with the FDCPA? The list of creditors not subject to this law is actually fairly expansive. Importantly, this includes the original creditor who lent you the money.
Thus, if you borrow money from Company A and it is, after your default on a promise to repay the money, Company A that phones you and threatens to have you jailed for the unpaid debt, Company A will not be subject to the FDCPA.
However, if Company A hires Debt Collector B to collect the unpaid debt, and Debt Collector B subsequently threatens you with jail-time, Debt Collector B can be sued under the FDCPA.
The US Bankruptcy Code
If you have already filed a Michigan Chapter 7 or Chapter 13 bankruptcy case before the creditor or debt collector threatens you with jail for your unpaid debt, either will be subject to sanctions for violation of the US Bankruptcy Code.
The character of the entity who threatens you (original creditor vs. debt collector vs. debt buyer or original creditor’s assignee) will not matter under this Federal statute.
When you file for bankruptcy in Metro Detroit or elsewhere, an immediate injunction against any sort of debt collection is enforced. This is known as the “Automatic Stay.” Creditors and other parties who violate the Automatic Stay can be required to pay contempt sanctions by the US Bankruptcy Court.
The possible need to move for sanctions against creditors who threaten jail or arrest for unpaid debt after filing your bankruptcy case is a primary reason why you should always retain an experienced bankruptcy attorney to assist you.
After your bankruptcy concludes with the issuance of the Bankruptcy Court’s official “Discharge Order” (discharging your debt obligations permanently), the Automatic Stay expires. However, it expires in favor of the Discharge Injunction, which makes the prohibition against debt collection permanent.
Any creditor who threatens you with jail for unpaid debt your bankruptcy can, again, be sanctioned.
Threats of Jail for Unpaid Debt Under Michigan State Law
The State of Michigan also prohibits a variety of illicit debt collection practices. MCL 445.252 prohibits, among other things:
- Communicating with a debtor in a misleading or deceptive manner, such as using the stationery of an attorney or credit bureau unless the regulated person is an attorney or is a credit bureau and it is disclosed that it is the collection department of the credit bureau.
- Using forms or instruments which simulate the appearance of judicial process
- Using seals or printed forms of a government agency or instrumentality.
- Using forms that may otherwise induce the belief that they have judicial or official sanction.
- Making an inaccurate, misleading, untrue, or deceptive statement or claim in a communication to collect a debt or concealing or not revealing the purpose of a communication when it is made in connection with collecting a debt.
- That the nonpayment of a debt will result in the debtor’s arrest or imprisonment, or the seizure, garnishment, attachment, or sale of the debtor’s property.
Depending upon whether the threat of jail or arrest for unpaid debt is verbal or in written form, one or more of the above prohibitions may apply under Michigan law.
Violations may result in a cease and desist order, as well as a fine of $500 for each offense. Private damages of $50-$150 are available for direct lawsuits filed under this act. Willful or repeated violations can result in much greater fines up to $10,000 and imprisonment.
Thus, under Michigan law, a creditor threatening you with jail may itself find prison awaiting it.
However, as with the FDCPA, the Michigan Regulation of Collection Practices Act applies only to “regulated persons.” Certain creditors and representatives will not fall under this umbrella.
Thus, the character of the person threatening you with jail will be important under Michigan law as well as under the FDCPA.
When Can I Actually Be Jailed for Unpaid Debt in Michigan?
Breach of contract lawsuits will be filed in a Michigan state circuit or district court. As noted above, breach of contract lawsuits are subjects of state law and not Federal law (most of the time).
When a lawsuit is filed, a Summons will be issued by the Michigan court after the creditor files its Complaint. That summons will be issued to you either by a process server or through other means permitted under Michigan law and the Michigan Code of Civil Procedure.
A hearing will be docketed by the court at which, pursuant to the Summons, you will be required to attend.
If you do not attend, the court may issue a default judgment against you. This default judgment can then be executed by the creditor in one or more of the following ways:
- Garnishment of your wages;
- Garnishment of your bank accounts;
- Garnishment of your Michigan state tax refund;
- Seizure of your personal property;
- Perfection of a judgment lien upon your real estate.
However, if this does not happen at the first hearing, the judge may docket a further hearing and issue a “show cause” order, requiring your attendance.
If you do not attend this hearing, the creditor’s attorney will ask the judge to issue a warrant for your arrest—and the judge will almost always agree.
You will then be arrested when located.
And you will indeed be jailed for your unpaid debt, in effect.
Jail for Unpaid Debt: The Bottom Line
The bottom line is that jail for unpaid debt is a possibility, although not for the reasons that a threatening debt collector give you.
If you have unpaid debt and take no action and ignore process servers and mailings from collection attorneys or your local Michigan district court, you may find yourself very unpleasantly surprised when stepping out of your local Baskin Robbins.
It pays to be proactive about unpaid if you worried about jail.
As you may now realize, the Federal bankruptcy process is the best solution available under US law for the problem of unpaid debt.
If you cannot afford to catch up or cannot negotiate a settlement or payment with your creditor, it is likely time to consult an experienced Michigan bankruptcy attorney to discuss Chapter 7 or Chapter 13 bankruptcy.
Attorney Walter Metzen is a Board Certified Bankruptcy Expert who has successfully assisted thousands of Metro Detroit Chapter 7 and Chapter 13 bankruptcy clients.
If you are considering filing for bankruptcy in Michigan, contact us now to discuss your options.