What Happens to Debt When You Go to Jail?

Your debts do not disappear when you go to jail, which is why it’s so important to take preventive steps: select a trusted person to handle your financial accounts, notify your financial institutions of the situation, and close bank accounts, credit cards and other types of accounts.

Of course, few people expect to go to jail. It’s usually an unwelcome surprise. If you’re jailed until your trial date or you can’t make bail, you might not have time to make any preparations. So it’s a good idea to designate a trusted financial caretaker now, before anything unexpected happens.

If there’s nobody available to help you with finances while you’re away, try to contact a nonprofit organization that offers credit counseling services^[16]. Or visit the Consumer Financial Protection Bureau website (CFPB), which offers financial resources to incarcerated people via prison libraries, workforce and court programs, and other community organizations.^[1]

Debt continues to accumulate in jail

Debt is not wiped away or frozen in time when you go to jail. Bill collectors can continue to pursue collections while you’re in jail, so it’s best to set up a plan and prepare financially for jail.

Your debt will continue to accumulate if you fail to close accounts that are set up with recurring billing. If you're unable to pay, creditors may sue you and obtain a judgment, which could allow the lender, debt servicer, or credit card company to garnish your wages or put a lien on your assets.

Also, you might spend a significant amount of money on your legal defense and, as a result, may no longer be able to afford to pay your bills. Without a steady stream of income in jail, your financial situation could go from bad to worse if you don’t act.

Refusal to answer debt could result in more jail time

If you don’t pay your legal financial obligations to the state — fines, fees, and court costs — that could result in jail time, too.

Bottom line: It is possible to go to jail for debt.

The United States banned imprisonment as a punishment for unpaid civil debt in 1833. Similar state laws were also passed, and the practice has also been banned by the Supreme Court.^[2]

As a result, you can’t be thrown in prison for failing to pay debt to a private lender, such as a credit card company or credit card issuers, or for failing to pay student loans or medical bills.^[3]

Also, under the Fair Debt Collection Practices Act and other consumer protection laws, debt collectors are prohibited from threatening you with criminal prosecution over the failure to pay a civil debt.^[4]

Despite these safeguards, a collection agency may file a civil suit against you for failing to pay a debt. If you do not respond to a court order and fail to appear at a court hearing (which is more likely if you’re incarcerated), you could be arrested for contempt of court.

If you’ve defaulted on student loans, the student loan servicer also may turn that debt over to the U.S. Department of Justice and attempt to collect through litigation. In this case, again, you could be arrested if you fail to appear in court.

You can also face jail time for failing to make child support payments, which is another case in which you’d be defying a court order.

The result of these lapses can be fines or jail time. In fact, despite the abolition of debtors’ prisons, statistics suggest that about 25% of incarcerated people are in jail because they failed to pay their financial obligations.^[5]

Legal debt presents another issue. According to the American Civil Liberties Union, “poor defendants are being jailed at increasingly alarming rates for failing to pay legal debts they can never hope to afford.”^[6]

You also can go to jail for deliberately underpaying or not paying your federal taxes. In this case, the IRS can garnish your bank account and/or up to 15 percent of your Social Security benefits to offset your unpaid debt in taxes.^[7]

A financial plan for jail can mitigate damage

In light of the risk that mounting debt poses to incarcerated debtors, it’s important to enact a plan for mitigating your debts if you face jail time.

Either arrange for repayment before you're incarcerated or create a plan to sell your assets. Appoint someone you trust to handle these arrangements and monitor your finances.

If you don’t, the long-term damage to your personal finances could be severe, and you may have a difficult time making up for lost ground once you’re released.

A report by Pew Charitable Trusts in 2010 found that serving time behind bars reduced hourly wages for men by about 11 percent, annual employment by nine weeks, and annual earnings by 40 percent. By age 48, the typical former inmate was projected to earn $179,000 less than if that person had not been incarcerated.

The study also found that the effects were passed on to the next generation: “A child’s prospect of upward economic mobility is negatively affected by incarceration of the parent.”^[8]

Preparing financially to go to jail

Once you go to jail, in most cases, your money will remain in your bank accounts if you leave it there. There are, however, a couple of exceptions:

• The government may seize your assets if you’ve been found guilty of a crime that benefited you financially, such as embezzlement or the sale of illicit drugs.^[9]
• Your bank may freeze your account as a safety feature simply because it’s become inactive for a time.^[10]

Even if your assets aren’t frozen, you still won’t have direct access to them while you’re incarcerated, so you won’t be able to pay your bills directly. To avoid going further into debt when you're serving your jail or prison sentence, make sure to prepare adequately.

Bills don’t stop coming just because you went to jail, so if you have time, put a plan in place for when you're away and might not be able to maintain your financial health.

Consider the following steps:

1. Appoint a trusted representative — usually a close family member or friend — to handle your financial accounts while you're gone. (You also could grant financial power of attorney to a professional you trust.)

2. Notify your creditors and financial institutions of your situation.

3. Close any unnecessary accounts, including streaming services such as Hulu and Netflix. Close credit cards, phone accounts and your car loan. Sell your house, sell your car, and pay your bills.

Select a trusted person to handle your financial accounts

You might have a very difficult time handling your financial accounts in jail because it can be hard to contact your creditors and financial institutions. Credit counseling also isn’t readily available, and it’s difficult to file for bankruptcy protection, if you need it, from behind bars.

That’s why it’s important to have a friend or family member you trust overseeing your financial affairs while you’re unable to. Consider opening a bank account jointly with that close family member or friend to make this process easier for them.

If nobody you know can help, consult your lawyer or prison counselor to ask for help managing your finances from inside^[11]. They should be able to put you in touch with a nonprofit that offers credit counseling or other financial help to incarcerated people.

You also can look up resources offered by the CFPB^[12] and prison advocacy websites that connect prisoners with regional and local prison advocacy programs^[13] and nonprofits offering financial help and advice.

Giving your trustworthy representative — whether family, friend, official or volunteer — your permission to manage your accounts can help ensure that your money is being monitored and managed in the right hands while you don’t have access to it.

Having someone you trust stay on top of your financial affairs can also protect you against identity theft. Inmates’ Social Security numbers are used annually to file tens of thousands of fraudulent tax returns seeking refunds worth more than $1 billion.^[14]

This is exacerbated by the fact that prisoners can’t monitor their credit reports from behind bars. In a 2018 case, 181 inmates saw their credit damaged after identity thieves used their personal information to apply for $1.3 million in federal student loans.^[15]

The upshot is that you won’t be able to protect yourself and your credit from fraud if you’re incarcerated the way you otherwise would. So it’s important to designate someone you trust to be on the lookout for problems.

However, the good news is this: If you were incarcerated at the time fraud was perpetrated in your name, you’ll likely be able to provide undeniable proof that you were in jail and couldn't have opened the offending credit account during that time.

That means you should be able to dispute the item and have it removed from your credit reports once you're no longer incarcerated, and reduce the credit damage done by the identity theft.

Notify your financial institutions and creditors

As soon as possible after you learn the terms of your sentence, notify your creditors and debt collectors of your situation. Also give them the name and contact information of the person you're appointing to handle your financial accounts while you're away.

Make sure that the banks or credit unions with which you do business understand that you're going to jail and that you're appointing a trusted friend or family member to handle your financial accounts while you're away.

Arrange all this before you go to jail so you can be sure your financial accounts are taken care of. That’s one less thing to worry about.

Close any unnecessary accounts

If you know how long you’ll be in jail, it’s a good idea to close any accounts that might accrue debt while you're away. Close out credit cards, streaming service subscriptions, cable TV, cell-phone service, newspaper and music subscriptions.

You may even want to sell your car or house so you won’t have to worry about a mortgage or car payments in jail. If you’re renting, give your landlord as much notice as you can. Either sell personal belongings, store them, or have someone look after them.

If you put your things in storage, designate someone to make the payments on your storage space. If they lapse, the owner of the storage facility may consider it abandoned and sell the contents at auction. It’s better for you to sell them yourself and gain some profit than risk losing them and the proceeds they could bring in.

These steps can minimize your financial damage while you’re incarcerated. They also can help ensure that once you get out of jail, you’ll be better able to start fresh with minimal debt.

How jail affects your credit score

Going to jail in itself doesn’t affect your credit score. But leaving accounts open (such as car notes, credit card debt, and subscriptions) can leave room for a pile of debt to accumulate while you're away. Then you’ll have to deal with it all when you get out.

Multiple late payments that accrue on your credit report while you’re in jail or prison may reflect poorly on your credit score.

The major credit bureaus don’t stop monitoring your credit or receiving information from lenders on you while you’re in prison, and your FICO® score isn’t frozen either — even if your bank account is. Your credit history could be at risk, and you could face higher interest rates when you get out of jail, even if you haven’t incurred new debt.

It’s not just your freedom that’s at stake when you go to prison. The integrity of your personal finances can be at risk, too. Take all the steps you can to keep it intact while you’re away.

Sources

1. Consumer Financial Protection Bureau. “Financial information and tools available to help people transitioning from incarceration,” https://www.consumerfinance.gov/about-us/blog/financial-information-tools-help-people-transitioning-from-incarceration/. Accessed June 30, 2021.
2. American Civil Liberties Union. “The Criminalization of Private Debt,” https://www.aclu.org/issues/smart-justice/mass-incarceration/criminalization-private-debt. Accessed June 15, 2021.
3. Experian. “Can You Go to Jail for Debt?” https://www.experian.com/blogs/ask-experian/can-you-go-to-jail-for-debt/. Accessed June 15, 2021.
4. Federal Trade Commission. “Fair Debt Collection Practices Act,” https://www.ftc.gov/enforcement/rules/rulemaking-regulatory-reform-proceedings/fair-debt-collection-practices-act-text. Accessed June 14, 2021.
5. North Carolina Law Review. “Eliminating the Criminal Debt Exception for Debtors’ Prisons,” https://scholarship.law.unc.edu/cgi/viewcontent.cgi?article=6771&context=nclr. Accessed June 15, 2021.
6. American Civil Liberties Union. “In for a Penny: The Rise of America’s New Debtors’ Prisons,” https://www.aclu.org/report/penny-rise-americas-new-debtors-prisons. Accessed June 15, 2021.
7. Social Security Handbook. “Can your Social Security benefits be levied or garnished?” https://www.ssa.gov/OP_Home/handbook/handbook.01/handbook-0129.html. Accessed June 15, 2021.
8. The Pew Charitable Trusts. “Collateral Costs: Incarceration’s Effect on Economic Mobility,” https://www.pewtrusts.org/~/media/legacy/uploadedfiles/pcs_assets/2010/collateralcosts1pdf.pdf. Accessed June 15, 2021.
9. U.S. Department of Justice publication. “Asset Forfeiture,” https://www.justice.gov/sites/default/files/usao/legacy/2007/12/21/usab5506.pdf. Accessed June 15, 2021.
10. U.S. Office of the Comptroller of the Currency. “Opening, Closing and Inactive Bank Accounts,” https://www.helpwithmybank.gov/help-topics/bank-accounts/opening-closing-inactive-bank-accounts/index-opening-closing-inactive-bank-accounts.html. Accessed June 15, 2021.
11. Creditcards.com. “Going to jail? 10 tips for reducing the financial damage,” https://www.creditcards.com/credit-card-news/10-tips-advice-finances-jail-prison-1265/. Accessed June 30, 2021.
12. Consumer Financial Protection Bureau. “Focus on Reentry companion guide,” https://www.consumerfinance.gov/consumer-tools/educator-tools/your-money-your-goals/companion-guides/#anchor_reentry. Accessed June 30, 2021.
13. Prison Activist Resource Center. “Resources: Regional Advocacy Organizations,” https://www.prisonactivist.org/resources/regional-advocacy-organizations?page=3. Accessed June 30, 2021.
14. U.S. Treasury Inspector General for Tax Administration Press Release. “Actions Need to Be Taken to Ensure Compliance With Prisoner Reporting Requirements and Improve Identification of Prisoner Returns,” https://www.treasury.gov/tigta/press/press_tigta-2017-15.htm. Accessed June 15, 2021.
15. The Denver Post. “Woman who helped use inmates’ names to get $582,000 in federal student loans sent to prison,” https://www.denverpost.com/2018/01/12/inmate-federal-student-loan-scam-prison/. Accessed June 15, 2021.

About the Author

Lauren Bringle is an Accredited Financial Counselor® for Self Financial - a financial technology company with a mission to help people build credit and savings. See Lauren on Linkedin and Twitter.

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