General Assembly considers two proposals to eliminate debtors prison in Illinois

Written by Tom Feltner on March 21, 2012 - 12:00am

Two proposals pending in the Illinois General Assembly promise to crack down on the practice of incarcerating indebted consumers with little or no income.  Each year, thousands of debt collection cases end up in court, with many borrowers unable to repay claims without dipping into exempt income, such as Social Security or the limited equity in their home or car.  A 2008 Woodstock Institute report found that 45 percent of borrowers taking out consumer installment loans in Cook County failed to appear in court, resulting in ex-parte default judgments in favor of the lender.

For indigent borrowers will little or no means to pay high cost loans or other forms of credit, an arrest can mean the loss of a job or an extreme hardship if a bond is required for release.  Robin Sanders, who was profiled recently by WBEZ, found herself incarcerated for four days while trying to raise a $500 bond for an unpaid $730 medical debt.  She was never notified of the claim against her.  Upon release, the bond was turned over to the collection agency.

The first proposal, HB5434, sponsored by Rep. Ann Williams (D-Chicago), amends Illinois legal proceedings to eliminate "pay or appear" requirements for low-wealth borrowers.  The proposal would require courts to notify borrowers in default that exempt income, such as Social Security, home equity or a borrower's car, is exempt from a garnishment or pay order.  Courts will also be required to conduct an ability to repay examination. In the event that a borrower in default has only exempt income, courts will be required to dismiss the case.  Courts would be prohibited from issuing bench warrants for arrest unless the borrower was personally served with the hearing notice and the court believes that the borrower has failed to appear for the purpose of concealing non-exempt assets.  Finally, any bond that is posted by the borrower in default must be returned to the borrower after release, and can not be transferred to the creditor.  The provision prevents creditors from pursuing the arrest of indigent borrowers in order to obtain the bond in lieu of damages.

The second proposal prohibits creditors licensed by the Illinois Department of Financial and Professional Regulation from requesting the arrest of borrowers unable to pay outstanding claims.  SB3234 Amendment 1, sponsored by Sen. William Haine (D-Alton), prohibits creditors from requesting an arrest order, called a writ of body attachment, unless a borrower repeatedly fails to appear in court after appropriate notification or has committed fraud to conceal non-exempt assets.  Creditors would be required to keep records of any collection actions that resulted in arrest, as well as maintain a written policy that their collection practices do not include requests for arrest.  The proposal covers payday lenders, consumer installment lenders, debt collection agencies and any attorney working on behalf of any of these companies.

A similar proposal, HB4695, introduced by Rep. Eddie Lee Jackson (D-East St. Louis), is pending in the House.

Woodstock Institute strongly endorses both the efforts to ensure that borrowers are not needlessly incarcerated and that the courts are not overburdened with collection cases involving defendants with no means to pay