Illinois Attorney General Lisa Madigan is lauding the state's House of Representatives for passing the Debtors' Rights Act of 2012, a bill aimed at protecting consumers from being taken to jail for unpaid debts. House legislators voted 107-0-1 to approve House Bill 5434.

The legislation now heads to the Senate for further debate. It would prohibit judges from issuing bench warrants unless a borrower is properly notified about a court hearing.
In the last year, Madigan said she had learned that residents in an estimated one-third of Illinois counties commonly face jail time when failing to appear in court in response to a previously entered order to pay a standing debt. While it is not a crime to owe money, an increasing number of people are being jailed after collection agencies convince judges to issue arrest warrants, according to Madigan's office.

The measure also would require the court to notify borrowers in default that certain income, such as Social Security or home equity, is exempt from a garnishment order.
Madigan's legislation would stop other common administrative abuses as well, including pay or appear orders that are entered routinely against debtors in some counties. The orders give debtors the option of making required monthly payments or appearing in court each month to explain their inability to pay. If a debtor misses one payment and court hearing, the debtors can end up in jail. The orders typically remain in effect for three years.

Victims of the practices usually owe payday loans, credit card debts, rent payments or outstanding medical bills, Madigan says. Many of the victims are living solely on income that is legally protected from being required to pay judgments of outstanding debt, such as veterans' benefits, unemployment insurance or Social Security, she adds.

"Creditors have been manipulating the court system to extract money from the unemployed, veterans, even seniors who rely solely on their benefits to get by each month," Madigan said. "Too many people have been thrown in jail simply because they're too poor to pay their debts. We cannot allow these illegal abuses to continue."

The legislation specifically would amend the Code of Civil Procedure to clarify and codify practices followed by courts, creditors and attorneys throughout Illinois to make sure that courts find a consumer's ability to pay prior to entering a payment order. In addition, it would prohibit payment orders relying on legally protected assets and income and would prevent bench warrants from being issued unless a consumer had been personally served with the hearing notice.

The sponsor of the bill in the Senate was Sen. William Haine.

To comment on this story, including the practice of jailing debtors that Attorney General Madigan has repeatedly spoken out against, contact Darren Waggoner, chief editor at Collections & Credit Risk, at darren.waggoner@sourcemedia.com or 312-777-1379.

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