When you are convicted of a felony and sentenced to incarceration, you leave everything behind, including any bills you owe. So what happens to your bills when you go to jail? That is an important question that many felons may ask.
Let’s take a look and answer that question.
In this blog post, we’ll cover the following:
- Common Belief
- The Reality
- What About Your Bank Account?
- Credit Card Debt
- What Happens to Your Credit Score?
- How to Deal With Bills From Prison
- Having a Plan
Some have the belief that if you go to jail, personal debt is wiped away or just “frozen.” Unfortunately, that’s not the case if you are sentenced to jail.
For example, most personal loans provide no protection for you in the event you’re found guilty of a crime and sentenced to serve time in jail. Lenders still expect to receive payment from you even if you are in jail.
If you don’t make those payments, a lender typically will report this to the credit bureaus, which will result in a reduced credit score for you. If there is still no payment, they will turn the debt over to a collection agency.
The collection agency will then pursue repayment however they can. Often, if you as a borrower are in prison, collectors can get a court judgment that allows them to garnish wages or repossess whatever the personal loan was used for.
If you had bought a house, and are unable to repay the mortgage, the property would be foreclosed on by the lender.
If you had bought a car through a personal loan, the vehicle will be repossessed in order to collect the lender’s money.
These are all too common situations that you may find yourself in if you have outstanding debts when you begin a jail or prison term.
Let’s read on to find out more about the reality of what actually happens to your bills and accounts in the event of going to jail or prison.
Most felons have no real assets. Many of the bills they had were mainly debts accumulated while they were involved in their criminal lifestyle.
Those might have been old gambling debts, loans from families or friends, or other financial obligations from a less than an honest source.
In fact, most of these aren’t ones that are reported to a credit bureau or show up on your credit score.
Following a lengthy prison sentence, these debts may be forgotten about, depending on the relationship you have with those individuals. These may be common examples.
Not all who go to prison are unemployed and broke. Some have jobs, assets, mortgages, bills, and credit card debt.
For those, the impact is greater than for felons who are not in the same financial position. They may have some legitimate financial obligations. What do they do about them when they go to prison?
What About Your Bank Account?
What happens to the money you have in your bank account depends on the charges for which you have been convicted. For most crimes, your money will remain in your account.
For some crimes, your accounts may be frozen. Some banks may freeze your account, as a safety feature, if it isn’t used for several months.
In most cases, your money will remain in your account and will remain yours. It will stay there throughout your incarceration.
However, if the government believes you have benefited financially from your crime, they may freeze your account or even seize these funds.
Also, many banks will freeze any account that isn’t accessed in months.
Credit Card Debt
Most people have credit cards and credit card debt. This includes those who end up in jail or prison. Any outstanding balance you have may result in late payments if you are incarcerated for a length of time.
If your family is unable to continue to make those payments there will likely be late payments that will continue to accrue. Of course, it is in your best interest to get your finances in order before going to jail or prison.
The first thought may be to close any credit cards while you are away. But think about it. It may be in your best interest in the long run to keep a credit card active.
Maintaining a credit card account will allow you to continue to build your credit history while you are gone.
On the other hand, if you keep a credit card account open and the credit card company cancels the account, this would result in a negative impact on your credit score.
It will depend on your situation and your current credit score as to whether you want to keep a credit card active during your sentence.
Also, if the credit card company discovers you are incarcerated, they can cancel the card without notice. That is within their rights.
What Happens to Your Credit Score?
If some credit card or loan payments are made while you are incarcerated, but the payments are late, this will drop your credit score.
Late payments are a major factor in your credit score, especially your FICO score. This is a score that as many as 90% of creditors rely on. In fact, your payment history makes up approximately 35% of your FICO score.
This means that continual late payments will lead to a significant drop in your credit score. Late payments will remain on your credit report for seven years.
Some may recommend filing for bankruptcy while in prison, but it is quite difficult to accomplish this, leaving you vulnerable to a continued drop in your score.
No wonder, felons face such a financial challenge after leaving prison.
How to Deal With Bills From Prison
Once you are sentenced, you will no longer have control over your accounts. You will need to give permission to someone among your family or friends to manage your accounts.
You could also set up a joint account to allow someone to take care of your money.
You can do this informally or you can create a legal transfer of the funds in your account to someone you trust to take care of. This can be done in the form of a power of attorney.
Another option is to create a trust and give power of attorney to a financial professional. A trustee has a legal obligation to keep your best financial interest in mind when making decisions about your money.
If you have a healthy amount of assets, this option is certainly worth considering.
If this applies to you, it takes having a plan before you enter prison. There are sources you can rely on to help you be prepared.
It is important since you may be serving a long sentence after your conviction to have someone you trust completely take over financial management while you are locked up.
You should notify creditors about the difficulty in making payments while you are away. They may be able to establish a reduced payment schedule or accept reduced interest during this time.
If bankruptcy is a possibility, it is difficult to file for bankruptcy while incarcerated.
Even if you are able to file for bankruptcy, this won’t eliminate certain types of debt. Debts such as child support payments, federal student loans, court costs, or restitution will remain on your record even after bankruptcy.
Having a Plan
Having a plan for managing bills and finances while locked up is important. Without this, debts can continue to accumulate and a shaky financial picture can become even worse. It is important to contact an attorney for legal advice.
Felons released from prison are unlikely to earn the same type of income they did prior to the conviction.
While locked up, felons may be at risk for identity theft and fraud, often from family and friends.
It is important not to give up. Persistence will pay off. You are not defined by your mistakes but in how you deal with them.
So what do you think about this blog post about what happens to your bills while you are in jail? Have you or someone you know been in that situation? What was that experience like, and how did that work out? Please tell us in the comments below.