State Court Of Appeals Slams Shut Rogue S. Indiana 'Debtors Prison', Limits Asset "Fishing Expeditions" In Attempts To 'Squeeze' Delinquent Borrowers

Valparaiso University School of Law Associate Professor Alan White recently wrote in Public Citizen's Consumer Law & Policy Blog:

• A while back I reported on the revival of debtor's prison in a southern Indiana county court.(1) The Indiana Court of Appeals has now struck down the local county court rule that imposed contempt sanctions, including imprisonment, for debtors who failed to pay small claims judgments on ordinary civil debts. The county court rule provided for a "personal order of garnishment," which, unlike ordinary garnishment orders directed at third parties like banks and employers, would order the debtor herself to turn over any non-exempt funds in the debtor's possession, regardless of whether such funds actually existed.

• The disabled and indigent defendant in the case at issue was found in contempt and ordered to serve 30 days in jail for failing to pay $10 monthly on a $445 judgment, despite not having any non-exempt assets or income.

• The Court of Appeals cited the Indiana Constitution's provision that "there shall be no imprisonment for debt, except in case of fraud," and voided the local court procedures.(2) Congratulations to John Brengle and Katherine Rybak of Indiana Legal Services on achieving simple justice in this case.(3)

Source: Indiana closes debtors' prison.

For the court ruling, see Carter v. Grace Whitney Properties, ___ N.E.2d ___, 2010 Ind. App. LEXIS 2172 (November 23, 2010) (approved for publication).

For more on the attempted comeback of debtors' prisons, see Incarceration Over Unpaid Debts On The Upswing? De Facto 'Debtors' Prisons' May Be Making A Comeback As Market For 'Zombie Debt' Zooms.

(1) This is not the first time the Indiana Court of Appeals found itself compelled to reverse a ruling of a rogue trial judge in a situation similar to this one. See Button v. James, 909 N.E.2d 1007 (Ind. Ct. App., 2009), where a trial court improperly threatened an indigent debtor with imprisonment for his failure to propose a plan to pay a money judgment.

(2) Creditors' use of asset "fishing expeditions" in the form of continuous debtors' reexaminations in ongoing proceedings supplemental hearings as a "club" to hammer, harass, and otherwise squeeze a debtor was addressed by the appeals court in this excerpt:

• Carter argues that the small claims court erred when it denied her request to limit future proceedings supplemental against her by Grace Whitney Properties. Carter requested that the small claims court issue an order that Grace Whitney Properties not be allowed to seek enforcement of the judgment in the absence of a good faith belief that Carter has property or income subject to court process, but the small claims court denied her request.
  
  We noted in Kirk, 585 N.E.2d at 1369, that a creditor cannot require a debtor to attend ongoing proceedings supplemental hearings and be reexamined continuously as to whether the debtor has acquired any new assets or income. "A second order or examination of the debtor requires a showing by the creditor that new facts justifying a new order or examination have come to the knowledge of the creditor." Kirk, 585 N.E.2d at 1369 (citing 33 C.J.S Executions § 365(3)(g) (1942)).
  
  
  If several examinations within a short time of one another have recently taken place, then facts should be shown from which it may be inferred that the judgment creditor will obtain useful information, and the examination is not being used as a club to enforce settlement of claims which the debtor is without property to pay.
  
  
  Id. (quoting 33 C.J.S Executions § 365(3)(g) (1942), and citing Federal Loan Corp. v. Harris, 308 N.E.2d 125, 127 (Ill. Ct. App. 1974) (holding that a general "fishing expedition" for assets may be conducted on initial citation for supplementary proceeding; but thereafter, the judgment creditor must show existence of facts giving rise to belief the judgment debtor has property or income to satisfy the judgment)). Again, the judgment creditor has the burden of showing that the debtor has property or income that is subject to execution. Id.
  
  Having been made aware repeatedly that Carter is disabled and has no income or property that can be used to satisfy the judgment, Grace Whitney Properties must make a showing that new facts justifying a new order or examination have come to its knowledge in order to justify future proceedings supplemental. Future "fishing expeditions" are improper. Carter has made a prima facie showing that the small claims court erred when it denied her motion on this issue.

(3) Indiana Legal Services is a a nonprofit law firm that provides free civil legal assistance to eligible low-income people throughout the state of Indiana.