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Debt Collection in Early America
In Maryland an 1639 statute required insolvent debtors to assign their property to their creditors in proportion to their debts. Debtors had to work off unpaid balances as indentured servants, bound successively to each creditor in declining order of the amount of their debt until every debt had been paid in full.

The peace treaty that ended the Revolutionary War had in it a provision to allow British creditors to pursue their pre-war debts in American courts without hindrance and with no suspension of interest for the years of hostility. At that time British merchants flooded the American market with higher quality and lower priced goods causing exports to fall, imports to rise and the level of income and wealth in America to decline. This caused a post-war depression that flooded the courts with debt collection lawsuits that crammed the jails full of debtors.

Debtors scoffed at the idea of independence because the law gave creditors the right to have absolute power over their debtor’s life and liberty. Creditors could at their will have debtors arrested and their property seized. One debtor’s will included instructions to sell his body’s remains to surgeons and that the proceeds should be lent with interest so that it could generate ongoing money to pay his debts. There was one problem however, his creditors owned and controlled his body.

William Samuel Johnson was a delegate to the Constitutional Convention and president of Columbia College. But before the Revolution he was a creditor’s lawyer, one of America’s first debt collectors. Because the process of legal debt collection could take years Johnson often recommended to his clients that they accept a negotiated settlement rather than engage in lengthy litigation. But this didn’t stop him from employing a tactic that is still effective today, the threat of a lawsuit. The threat of a suit worked for two reasons one being fear and the other ignorance. Like today most debtors didn’t know the law gave them considerable legal rights. This fact gave Johnson one of his most powerful weapons, the bluff.

If the debtor was knowledgeable of the legal procedures and wasn’t scared by the word lawsuit then convincing the creditor to negotiate was Johnson’s best tactic. However it wasn’t always successful so lawsuits often occurred.

Going Legal
There is one major difference between the legal process then and now. Then the common way to begin was by a writ of attachment. The attachment required a debtor to provide security sufficient to satisfy the debt. If the debtor had property it could be used but if not his body became the security. If the debtor’s body was attached he needed to secure the services of a bondsman or sympathetic friend or relative. The alternative was imprisonment. Not designed as punishment but as a way to guarantee a court appearance the imprisonment never-the-less imposed punitive sanctions, jail.

Even then debtors with steady nerves and a good grasp of the law often responded to the threat of jail with indifference or defiance. That’s because imprisonment may have helped them delay a payment they were required and able to make. Of course there were two good ways to avoid the writ of attachment one being stay in your home where you were exempt from being served, which some did for years, or flee and hide.

Then, as today, a victory in court didn’t produce immediate payment. Instead a writ of execution was implemented. In simple terms it directed the sheriff to attach the debtor’s property. But the debtor could avoid the attachment of property the same way they could avoid the initial attachment, by fleeing or hiding. Even when property was attached there were loopholes and complications. Only non-exempt property could be attached which allowed debtors to keep basic necessities and in Southern state plantation land was off limits. Even today Florida and Texas retain this exemption.

When land could be attached problems often ensued. Often mortgages or other liens were given precedent over the attachment. Even when the property could be seized and sold the lack of buyers and cash often netted the creditor only a fraction of the land’s stated value. And the attachment of last resort, imprisonment, may have given the creditor a sense of justice but it provided him with no money. These complications being known provided incentive for the creditor to negotiate rather than sue. And in the absence of a settlement lawyers often advised creditors to consider the debt lost rather than incur the time and expense of suing.

Getting Automated
As early as 1788 Samuel Barrett, a Boston justice of the peace, used printed forms to notify debtors that he would sue them unless they paid. It had blanks left for the names of the creditors and debtor, their places of residence, the form and amount of the debt and the length of the remaining grace period before the filled suit. In the 1780s & 90s debt was a great incentive to migrate west. So many debtors fled debt collectors to live in less-expensive Kentucky that the mere absence of a debtor raised the speculation that he had “gone to Kentucky.” By 1799 newspapers were running ads for debt collection services.

An example of early debt collection is the case of a Peoria debtor who had no property. His creditor hired the local postmaster who then pestered the debtor’s father-in-law into cosigning the debt.

Life and Death on Prune Street (Debtors Prison)
In eighteenth America the laws concerning debt coleection varied greatly by state. The only consistent aspect of the law was the every colony and later every state allowed imprisonment for debt. Imprisonment for debt had occurred in England for over three hundred years and early colonial records show imprisonment happening as early as 1678 in Salem Massachusetts.

In the 1790s criminal codes were updated eliminating whipping, ear-cropping, and branding and instituting prison sentences of specified lengths. This left only debtors to serve an indefinite term.

The two most notable debtors prisons were New Gaol in New York and the Prune Street jail in Philadelphia. Unlike criminals debtors had to supply their own clothing, food, and fuel. The tone of the imprisonment was set by a sixteenth century English judge who believed that if the debtor couldn’t provide food for himself he should rely on the charity of others or simply be allowed to starve to death. This led to conditions that were so harsh that relief organizations were formed to help the debtors. In New York the Humane Society distributed donated food and clothing to the prisoners.

In 1791 Pennsylvania Governor Thomas Mifflin inspected a prison and was struck by the painful differences in treatment between debtors and criminals. While debtors were without clothing and food criminals had the basic needs well cared for. He concluded that being a debtor seemed to be more offensive to society that being a vicious criminal. Although he urged legislation to provide for debtor’s basic needs none was passed into law.

This left the American justice system in a peculiar situation. For if a man robbed a bank of $1,000 he would be sentenced for a specific period of time. During his imprisonment he would be well cared for, feed and clothed. But if a man borrowed $1,000 from the bank to start up a business and the business failed leaving him unable to repay the loan he would be jailed indefinitely. If unable to feed or cloth himself he could starve or freeze to death.

Who Served in Debtors Prison?
The collapse of large-scale speculation schemes in the 1790s lead for the fist time to imprisonment of large numbers of “wealthy debtors.” This included William Duer whose speculative empire consisted of investing in paper assets, stocks, government warrants, state securities, and currencies and securities on the consolidated national debt. He had hoped to take over the Bank of New York and perhaps the Bank of the United States. But when stock prices fell his high interest loans and leveraged purchases defaulted and triggered the financial panic of 1792. He died in debtors prison.

Robert Morris, a signer of the Declaration of Independence and U.S. Constitution, got out of debtors prison because of the short-lived bankruptcy bill of 1800.

Thomas Rodney an officer in the Revolution, a member of the Constitutional Congress, and a judge of the Supreme Court of Deleware was in debtor’s prison for fourteen months in the early 1790s

Richard Crowninshield was a successful merchant and ship owner with net assets of almost $200,000 in 1811 but a year later he was in debtors’ prison.

The End of Debtors Prison
As the legal system for debt collection evolved and became more standardized the need for debtors’ prison lessened. More loans become secured and the system of garnishment allowed for easier collection of small debts. By 1850 debtors prison in America was a thing of the past.

Early In-House Collectors
In the late nineteenth and early twentieth century many people received loans from small-loan agencies. These companies loaned money either on the basis of a secured property, property the lender could hold onto, or on the assignment of future wages. Skirting usury laws by claiming they weren’t lenders but “salary buyers” wage assignment lenders often charged interest rates as high as 1,000 percent. Borrowers filled out a lengthy application and signed complicated-looking promissory notes. Because the interest rates being charged were illegal the documents had no real legal standing but relying on the ignorance of the borrower they proved effective in reducing the number of those skipping out on their debts.

These lenders had a well defined system of collection. Employees of companies that forbad them from taking out wage assignment loans were routinely approved because the threat of telling the employer proved to be an effective collection tool. For others the collection started with letters and phone calls. If necessary a personal visit from a “bawlerout” was prescribed. This entailed having a female collector publicly embarrassing the debtor in front of his co-workers or family by browbeating him for being a sorry deadbeat.


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