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Debtor's Prison: a good idea?

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Vladimir Berkov
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I know that the abolishing of debtor's prison was heralded as a great reform, but was getting rid of it really a good idea? One only has to look at the massive amount of debt (especially unpaid credit card debt) held by Americans to see that many people don't see repayment of debt as a prime obligation.

Should we bring back debtor's prison?

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Debt: There is a lot of debt --> MassDefault: People in general aren't paying back debt --> MassEvil: People in general are evil, so much so as to warrant excluding them completely from society.

I'm having trouble with Debt --> MassDefault, and with MassDefault --> MassEvil, because you don't explain, at all, how you get from each idea to the next. Think you could explain each step?

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One only has to look at the massive amount of debt (especially unpaid credit card debt) held by Americans to see that many people don't see repayment of debt as a prime obligation.

I know one group of people who would be very much against it coming back - and that would be precisely the credit card companies.

I remember one year at Christmas time, one of my credit cards sent me a notice that they upped my credit limit. The limit on that one card alone (never mind all my other cards) was already rediculously high in terms of my ability to handle that level of debt based on what I was making at the time - and here they were raising it. Not only that, they included a note that said: "Congratulations on your new credit limit. Here's a helpful hint: By using your XYZ Card for the things you need such as groceries, utility bills and car repairs, you can free cash up for things you want such as Christmas gifts, electronics and vacations."

So here they are - willing to extend me more credit than I would be willing to extend to myself if it were my money being lent and they are encouraging me to go into debt to buy my necessities so that I can blow my money on luxuries that I really don't really need and can't otherwise properly afford. And all one needs to do is look at the credit card ads and see that they spend a great deal of advertising money to encourage their customers to live beyond their means.

Sure, some of their customers default as a result of such irresponsibility. But apparently enough of them continue to make their payments - and I would assume that the credit card companies make very big money from people living such a lifestyle. If they could end up in jail in the event their financial situation suddenly deteriorated, my guess is that quite a number of the credit card companies most profitable customers would think twice about living in debt for frivolous reasons - and I am sure that would not be something the credit card companies would welcome.

I also suspect that commercial banks would be a bit hesitant as well. The bright young entrepreneur who has a brilliant but risky business plan might be a bit reluctant to start that new venture on borrowed money if it involved the risk he might end up behind bars as a sex slave to some thug.

As for what I think about debtors prison - the notion of attaching jail time to what is essentially a civil matter is a bit disturbing to me. When you loan someone money, you do so knowing full well that there is always a risk of default. That is what running a credit check is for.

Edited by Dismuke
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Based on anecdotal evidence -- like a few of the folks who call financial radio-shows, explain their past irresponsibility with borrowed money and their utter nonchalance at declaring bankruptcy -- I think there may be some types of non-repayments of debt that rise to the level of crime. It really is one example of the more basic question of: what rights-violations should be criminal rather than civil. There's been some discussion of the criminal/civil difference in previous threads. One would really have to study the facts of personal bankruptcy cases in far more detail to make a judgement about categories that -- maybe -- ought to be criminalized.

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I know that the abolishing of debtor's prison was heralded as a great reform, but was getting rid of it really a good idea? One only has to look at the massive amount of debt (especially unpaid credit card debt) held by Americans to see that many people don't see repayment of debt as a prime obligation.

Should we bring back debtor's prison?

Sure. On one condition: That the government eliminate taxation and monetary depreciation.

The reason people are living in debt is because it's the only way to survive under a system that ultimately taxes 92% of every average American's income. Credit lets people live the illusion of prosperity, even when the government has stolen all of that prosperity to taxation. When I see people using credit cards to pay for groceries, it becomes desparately obvious that we are living in a world of hurt, and without that credit, many families would starve or turn to desparate measures to put bread on the table.

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I'm basically in agreement with sNerd but I have to think further about this. I was going to post some type of example where someone has the option to repay or spend and they choose to spend instead. As a result, they can not repay. Was the money really theirs to spend in the first place? I don't know that "debtor" is the right word to use here though.

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I can't see any justification for prison. There unquestionably is a problem which needs to be legally addressed, but the biggest problem is the concept of exempt assets, not the lack of prison time. At a certain point, the spender's actions might rise to the level of the fraud, for example materially misrepresenting his level of debt or assets, in which case jail is appropriate. Contempt of court deserves jail time, for example when ordered by a court to pay a debt you refuse to comply with the law. When you eliminate those considerations, and when you eliminate those laws that make it possible to evade your debts (such as aspects of bankruptcy law), and finally if you allow the creditor to also make a claim for his costs in collecting on the defaulted-on debt, then there is no room for prison, as a punishment for failure to pay your debts.

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but the biggest problem is the concept of exempt assets, not the lack of prison time.

I definately agree that exempt assets shouldn't exist, and that the more proactive measures should be taken (seizure of property) against those who don't pay up.

At a certain point, the spender's actions might rise to the level of the fraud,

I guess what I'm driving at is that in some debtors borrow money knowing they can't and will not pay it back. If the law was appropriately corrected this scenario would be eliminated.

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Frankly, I think this just boils down to a case of fraud . . . if there was no fraud involved, there's no crime. The credit-card company (or whoever) knows going into the transaction that they may lose their money.

It's definitely a very, very bad sign that companies are not just willing, but desperate, to extend more and ever more credit to people that are known high risks because this is the only way the company can stay in business. When you hear that "0% APR YOU WILL BE APPROVED" advertisement on the radio from a car dealership you can know that this dealership is about to fold and fold bigtime. They don't know or care whether the people they're "selling" cars (or whatever) to can ever afford to buy the car, they want something, anything that they can mark down as revenue so that they can keep the doors open.

And what happens if you try to be fiscally "responsible" in this climate? You see your little pleasures dissappearing day by day, swallowed up by your "necessities" budget. I myself have watched, oh, a couple thousand dollars dissappear into medical and dental insurance that I can't afford to actually use short of a life-threatening emergency (gotta pay the copay, still!) . . . oh, and the rate just went up.

Heh, maybe I would rather go to prison, at that. (Or the Army, if I could lose some weight.) I wouldn't have to worry about losing my job or transportation, at least, and I've lived in places almost as grim before. Clear the decks and start over . . . except there's precious little room to start in any more.

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I think the availability of easy and cheap consumer credit has certainly created a form of pseudo-affluence amongst a certain rather visible subset of our society. They are visible because they tend to spend their money in ways which are visible - nice cars, nice houses, nice clothes, cool vacations colleagues at work hear about, nice restaurants, etc. We consider such people "successful" and have no idea that their personal assets are in the negative. Saving and investing one's spare money is not as visible and the "lifestyle" of such people tends to look somewhat less "cool." I think this tends to create a widespread impression amongst the public that one's financial success is based on how much money one spends and not how much wealth one has.

It takes a certain amount of discipline and long term perspective to be able to say: just because I have the savings and/or credit to buy these really cool clothes (or whatever) and could actually own them by simply saying "yes" it does NOT follow that I should. Quite frankly, a lot of marketing these days is targeted to appeal to whim. This is not a criticism of marketers - that is a rational and normal response when one's marketplace is made up of a large number of whim worshipers.

I kind of wonder how many people who regularly drop $5 on a cup of Starbucks coffee drink pay off their credit card bills each month. Of course, context is everything. $5 on a cup of coffee is a nice, occasional treat and if you enjoy it with friends and linger awhile for great conversation, it is a relatively cheap form of entertainment. But there are people who go to Starbucks every day and my guess is many of them have debts at the end of each month.

My grandparents - who were young adults in the Great Depression - would have been scandalized at how many times I have bought that $5 cup of latte - something I could make at home for myself for perhaps 35 cents maybe. When my grandparents were young, a soda pop was something people regarded as a special treat. The big name brands cost 5 cents (about 75 cents or so in today's money) and for that you got a 6 ounce bottle. Bargain brands such as Pepsi were popular with kids because they came in "big" 12 ounce bottles. Today, one can get 44 ounce super duper big gulps for about the same price or less in inflation adjusted money. Few people today think of a soda pop as a luxury item - and people today drink them like people once drank water and have the pounds to show for it as well. Somehow, I suspect that folks back in my grandparents day got more pleasure from those occasional 6 ounce bottles of Dr. Pepper and Coca-Cola than do the people today who drink those same beverages daily at lunch time and between meals.

The kind of lifestyle a person choses to lead is a reflection of his hierarchy of values. It takes a certain amount of independence for a person to organize his heirarchy of values in terms of which pleasures he chooses to pursue based on the limitation of his means (i.e. by the present facts of reality and future long term demands on his wealth) rather than the often attractive and tempting hierarchy of values offered by the popular culture and marketers complete with all sorts of wonderful buy now pay later deals. And if one is motivated by social-metaphysics - well, one is especially vulnerable to the appeals of popular culture and marketing.

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It's easy to point to ostentatious consumerism -- SUVs, McMansions, bling, vacations on the beaches of Ponape -- and think "Such wastrels, they should be saving their money" and worse, you might conclude that they are living way beyond their means, with no concern for their future existence. I have no doubt that there are plenty of whim-worshippers out there, especially young people who have not yet had to take responsibility for their own existence, the progeny of well to do parents who fulfill their children's every whim. I can't entirely blame the children for giving in to powerful TV marketing campaigns. I do blame the parents, for not learning the word "No".

I don't have any hard facts that tell me that these people are spending more money than they are making. I mean, it stands to reason that they have to be, because it's not like we're really that wealthy a nation. Or are we? I am constantly stunned at how the consumer market is expanding and prices are dropping. I don't think it's a clever marketing ploy to get people to spend their last pennies before they go bankrupt, nor is it the hedonistic irrational spending frenzy that is prophecied to precede the 7 horsemen of the apocalypse. Spending is good, because it make production profitable, and more production means not only more stuff for me, but cheaper stuff.

Privation is not a virtuous state. It's true that you could make the same yucky $5 Starbucks drink at home for a pittance, you would drink tap water if you're thirsty, you could wear the same shoes for 5 years, drive a Chevy Aveo or used VW, but why would you? If you've got the money, and have a long-term life plan, then go buy that SUV.

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Was getting rid of [debtor's prison] really a good idea?

I know one group of people who would be very much against it coming back - and that would be precisely the credit card companies.

The bright young entrepreneur who has a brilliant but risky business plan might be a bit reluctant to start that new venture on borrowed money if it involved the risk he might end up behind bars as a sex slave to some thug.

When you loan someone money, you do so knowing full well that there is always a risk of default.

Agreed.
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The sad thing about credit cards is that like the lottery, they are generally like a tax on stupidity. There are a few rather sleazy practices credit card companies engage in, but in general, the problems people get into with the credit card companies are based on their own short-sightedness and stupidity. And credit card companies bank big-time on that stupidity, just like the people who run lotteries.

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I just use my credit card as a way of buying stuff on the internet. It is also quite convenient for traveling purposes, but I never spend more money than I have with the thing. I just do not get why someone would want to spend money they don't have, unless you absolutely had to. I guess I'm a bad customer for my CC company. :o

But seriously, though. Why would you spend money you do not actually have at the moment? Isn't that a complete betrayal of the concept of money? I don't have a problem with loans for a specific purpose, but from what I can tell these credit card debts mostly accumulate because people spend too much on trivialities. And even when you just use it as an advancement on your loan; why not simply wait a week and buy it then? That way you don't have to worry about the huge interest rates in case something goes wrong, and you get the pleasure of paying for something with money you've actually earned.

Heh, maybe it's just my dutch side speaking up or something (in case you don't know, we're well-known for being financially conservative).

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But seriously, though. Why would you spend money you do not actually have at the moment? Isn't that a complete betrayal of the concept of money? I don't have a problem with loans for a specific purpose,
Well, I would spend money that I don't have if I knew that I could get it, slowly, over the course of a few years, and needed the thing now. For example, my first new car, where at the time I needed a bit of extra money to buy it. Or my house. A bit more than my available cash. And the math turns out to have been good, given the tax deduction on the interest, the appreciation of the house, and the cost of the additional decade of rent that would have had to be paid. No betrayal of the concept money there, I think.

But yeah... still, it's virtually impossible to enjoy the fruits of the modern online world without a credit card. But always have a zero balance at the end of the month.

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Well, I would spend money that I don't have if I knew that I could get it, slowly, over the course of a few years, and needed the thing now. For example, my first new car, where at the time I needed a bit of extra money to buy it. Or my house. A bit more than my available cash. And the math turns out to have been good, given the tax deduction on the interest, the appreciation of the house, and the cost of the additional decade of rent that would have had to be paid. No betrayal of the concept money there, I think.

But yeah... still, it's virtually impossible to enjoy the fruits of the modern online world without a credit card. But always have a zero balance at the end of the month.

I know, but the situation you mention is different in that you have a good reason to need it now. A new tv is not quite as crucial to have in the next day, I would say. I was talking more about those types of purchases in my post. I don't think the things you mention are the main reason people end up in huge debt, though.

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DavidOdden mentioned default on court judgments. Even if you hold people to their debts by removing the bankruptcy escape route, how do you wring blood from a turnip? Say you have a deadbeat with no assets who decides, rather than pay off his debt, to be an unemployed mooch living off his friends or parents? There's nothing to get, either through seizure or garnishment, and you can't rightly go after his parents to enforce the debt: he's an adult. (This scenario based on child support evasion.) Or what about those few corrupt businessmen who defraud their employees of promised pensions? They don't have enough assets to cover the debt. If you can avoid a court judgment by becoming worthless, what happens to the wronged party? How shall he be compensated?

Some companies buy judgments, thereby compensating the aggrieved party now (usually for less than the judgment amount), but that doesn't make the debt owed by the debtor go away.

Would debtor's prison include some sort of productive labor, to cover the costs of imprisonment and to begin paying back the debt owed?

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Even if you hold people to their debts by removing the bankruptcy escape route, how do you wring blood from a turnip? Say you have a deadbeat with no assets who decides, rather than pay off his debt, to be an unemployed mooch living off his friends or parents?
Exceptions can be cooked up, I'm sure, where some deadbeats do sort of escape. But still, this person has to be assetless and jobless. Lenders have to take some responsibility, as they do even now: a man with no assets and no job will (hopefully) not be given a credit card. If Visa knowingly extends a $5,000 line of credit to a man with no visible means of support, they are gonna get what they deserve, and as a shareholder, I will vote for the firing of the CEO who allows such a policy to exist. Of course there are escape hatches, like getting the card and then destroying a huge fortune. Or hiding out with the 'rents for 20 years until they die and you can legally take his inheritance.
Or what about those few corrupt businessmen who defraud their employees of promised pensions?
But that's a different problem: if a madman blows up a building worth a billion dollars, how can you ever get compensation? You can't treat actual fraud and fiscal irresponsibility the same.
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There are certainly valid occasions for going into debt. Big ticket items such as houses or cars are definitely examples. Having use of such things while one pays for it is, for most people, often worth the price of the interest. But even here, people end up getting into trouble by buying more house or car than they can responsibly afford based on their income level.

I would love to have a bigger house - and I would certainly be able to qualify for one in terms of being able to get a mortgage. But my monthly costs would go up big time if I did that. Why do I want a bigger house? Because I am a packrat and the house I have is already filled up with all sorts of neat junk that I have picked up in estate sales and such. Of course, if I had a bigger house, it would only be a matter of time before I fill it up too and will be wanting an even larger one. I have three large floor model radios from the 1920s and 1930s. I never listen to them as they only pick up modern stations. I have them because I think they are really cool and they are quite beautiful - and because I was able to pick them up for very little money at auctions. Do I really need to have another one? If I have to buy a bigger house to make room for another that I pick up for a "bargain" somewhere - well, is it really a bargain? How important are neat old radios to me? Not very, actually. My passion is collecting vintage records - radios are just one of a great many side interests that I have. Perhaps it would make more sense if I just learned to make better use of the space I already have and be far more selective about the sorts of stuff that I drag home - and if there is something that I want really badly, perhaps I should consider getting rid of something else in order to make room for it.

If more people had such conversations with themselves, I think they would be able to avoid a great deal of the troubles they get into.

I do think there are contexts where carrying over a credit card balance for non-necessities is ok. We can use the TV example. If one has a family and has only a modest income, television is a rather inexpensive form of entertainment. If the family television set were to suddenly go out, they could decide to go without television for a few months and save up some extra money by not going out to restaurants until they have enough for another television. But, in doing so, the family is having to go through those months without eating out and without television. Putting the television on a credit card and using the money saved up from not eating out to make card payments enables them to still enjoy television and only have to give up eating out. Sure, there are interest charges. So maybe to pay the interest, the family must give up one additonal meal out. That would probably be worth it for most people. And even thought he family is carrying over some credit card debt, they are still living within their means because they have made the necessary adjustements elsewhere in their budget in order to pay the debt off.

Where people often get in trouble is, once they have seen what they were able to do with the television, they begin to think that they can just as easily do the same with all sorts of other things that they have always wanted to have. At some point, they either run out of other expenses they can cut or are unwilling to cut other expenses and an ever increasing amount of their paychecks end up going to pay off interest on a debt that never goes down and only goes up. The only way to get out of that trap is to go on a major long-term austerity program so that one can not only pay off the interest but also start making a dent in the actual debt. Unfortunately, once a person has "upgraded" his lifestyle, such an austerity program tends to be all that much more painful.

Edited by Dismuke
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