Going to jail? 10 tips for reducing the financial damage
Credit counselors, attorneys, ex-convicts say planning ahead is key
Although the vast majority of the 2.4 million people serving time in jails and prisons across the United States do not have significant assets, some do have mortgages, outstanding credit card bills and even businesses that are jeopardized when they become incarcerated.
Here are 10 tips from credit counselors, attorneys and ex-convicts themselves about managing and safeguarding your financial affairs if you're heading to prison:
1. Find someone who you trust completely to take over your financial affairs. Inmates who can arrange for someone on the outside to take over car payments or negotiate reduced payments with creditors can emerge from jail without amassing greater debt while inside, experts say. Fines, fees and interest for everything from credit cards to child support or alimony payments can accrue over the years and make even a small debt grow to large amounts. "Tex," who asked that his name be withheld, says he's making plans to keep his bills paid while he's away in prison. It will be his second prison sentence, and he says he learned from the mistakes he made with his finances 19 years ago after his first conviction. "The first time around, I didn't respond to nothing. Not child support notices or anything. After I got out, it was piled up something fierce. It took me years and years to pay that thing down."
2. Set up a joint bank account with that person before going to jail. It will be difficult to set up a bank account once you're incarcerated because federal anti-terrorism laws passed after the Sept. 11 terrorist attacks require account holders to provide identification and appear in person at the lending institution when opening an account. "We get a number of calls from inmates who, because they didn't have [bank] accounts open, and they relied on others, they've been bilked. They've had people take advantage of inheritances they've received," says David O'Neil, a former Texas public defender whose Houston law firm represents prisoners seeking parole or help managing their affairs from behind bars. "We've seen some inmates who've gotten brokers or set up trusts and had trust officers from responsible banks handle their funds. These seem to work out quite well from our experience."
3. Consult an attorney about drafting documents to give someone you trust your power of attorney. This gives the trusted person the legal right to make decisions on your behalf and gain access to checking and savings accounts.
4. Contact all of your creditors and let them know that you will have difficulty making payments for a period of time.
"Ask if they can put you on a reduced payment for a while or a hardship program with reduced interest. Some creditors will do it," advises Andrew Bernstein, a certified personal finance counselor with DebtHelper.com in West Palm Beach, Fla. He has conducted personal finance and debt counseling seminars for inmates in state and county jails and prisons in South Florida. Adds Tex, the ex-convict awaiting another prison sentence: "Call the people you need to call. If you have child support, they need to know where you're at immediately and work something out."
Ask if they can put you on a reduced payment for a while or a hardship program with reduced interest. Some creditors will do it.
|-- Andrew Bernstein
5. Vehicles may be repossessed unless you get someone to take over payments, insurance and maintenance. Again, find someone you trust. There are cases of family members selling the inmate's car, truck or other possessions for cash.
6. If you're considering filing for bankruptcy, it may be difficult to fulfill the necessary requirements while in jail. The 2005 bankruptcy law requires debtors to get credit counseling before filing. Although these sessions can be conducted via telephone or the Internet, inmates are not guaranteed telephone time, Internet access is prohibited and physically attending the sessions is impossible. Laura Bartell, a law professor and scholar at the American Bankruptcy Institute, has studied prisoner attempts to file for bankruptcy while incarcerated. She says inmates who try to file for bankruptcy do so because a spouse on the outside can't keep up with the bills. "Some of these prisoners are married, so the debt collector is calling the wife. That's not a happy situation," says Bartell.
7. Prisoners often have a difficult time finding attorneys to represent them. As a result, they file "in pro se," meaning they act as their own attorneys. The odds are great that the bankruptcy will be rejected.
It may make sense for a prisoner and his wife to try to file for bankruptcy, Bartells says, "If they are jointly liable for the debt and he had an income and now he doesn't have an income, and she cannot carry the debt load with her single income." But she adds, "If they are judgment-proof and have no assets that are not exempt, there's nothing in it for creditors who sued them. It's a bother having the debt collection calls, but you can't get blood from a stone."
If they are judgment-proof and have no assets that are not exempt, there's nothing in it for creditors who sued them ... You can't get blood from a stone.
|-- Laura Bartell
Law professor, bankruptcy expert
8. Bankruptcy won't help you get rid of or discharge several types of debt, including child support payments, federal student loans and court and restitution costs associated with your crimes. Those debts will remain on your credit record.
9. If debt collectors are calling your family members asking for payment on loans, make sure the collection agency or creditor knows you are serving time. Instruct family members to give the collector the name of the facility so they can call to verify your whereabouts. This may stop collection efforts, although if your spouse is jointly responsible for the loan, the debt collector may continue to seek payment from him or her.
10. Inmates serving long prison sentences may feel that they can ignore their debts. And it could be true: By the time they are released, the state statute of limitations on many types of consumer debts (which varies by state) may have expired. The statute of limitations only limits the creditors' ability to successfully sue to collect on an old debt. Creditors still can ask for payment even if the debt is time-barred and the unpaid debt remains as a bad mark on a credit report for up to seven years. Old debts are commonly sold and resold to debt buyers and that old unpaid loan may show up again years later and require you to take steps to remove it from your credit report.
See related: How going to jail impacts your credit, finances, How going to jail impacts your credit, finances, Ex-offenders face big debt challenges after prison
Published: October 15, 2010