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Could outstanding debt lead to time in debtor's prison?

Among Michigan consumers, debtor's prison is not a term commonly parlayed in discussions of debt management or collections attempts. However, a recent report suggests that the practice of jailing debtors who become delinquent on their obligations is not a thing of the past. Over one third of states have laws that allow debtors to be jailed for their outstanding debt. It appears, however, that even in states that do not allow such penalties, some have found a legal loophole that can land a debtor in jail, nonetheless.

Here's how it works in one state. Payday lenders go to civil court and get a judgment against a debtor. That debtor is then summoned to appear in court for what is termed an 'examination.' The examination is simply a review of their financial holdings.

If and when the debtor fails to come to court for that examination, the creditor ask the judge for a 'body attachment.' This is akin to an arrest warrant. Local police can then arrest the alleged debtor and put them into jail. The bond amount is usually the same sum allegedly owed to the creditor.

Many criticize this practice as detrimental to borrowers who are not able to pay their outstanding debts. In addition, this routine places courts and law enforcement into the role of debt collector, which places undue strain on the judicial system. At least one state has passed legislation to halt the practice of creating a modern-day debtor's prison.

For consumers who are overwhelmed by outstanding debt and unsure how to climb out of financial difficulties, there are options available to help you get back on track. Filing for personal bankruptcy can stop aggressive debt collection tactics, and can also discharge a large portion of consumer debt. Bankruptcy allows borrowers to find a fresh financial start, in Michigan and beyond.

Source: DailyFinance.com, "Debtors' Prison Is Back -- and Just as Cruel as Ever," Ross Kenneth Urken, Aug. 30, 2012

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