First off, there are no "debtors' prisons" in the United States. We abolished that rule in the early 1800s. Defaulting on credit card debt is purely a civil matter, and your grandmother won't go to jail for that alone.

Yet, in many parts of the country, some third-party debt collection agencies have become very aggressive about suing consumers for relatively small sums of money. Ignoring a summons to appear in court can land you in contempt with a judge, who can issue an arrest warrant. According to reports from NPR and The Wall Street Journal, that's how some Americans have landed in jail for a few nights over debts as small as a missed furniture payment.

In an environment where JPMorgan Chase can lose $2 billion in securities trading, why would banks bother suing over a few hundred bucks? It's not the banks. Third-party "debt buyers" purchase the rights to collect on "charged-off" revolving accounts for pennies on the dollar. Some of them aren't afraid to use intimidating tactics to gain access to whatever money she does have.

Fortunately, you can take some steps to help assure your grandma that she won't end up in the 21st century version of a debtors' prison:

  • Track all accounts and balances. Make a list of the credit card accounts and balances, so nothing falls through the cracks.
  • Set up a new money management system. If your grandmother needs your help with budgeting and spending, consider setting up a prepaid debit card that you both can track.
  • Partner with original creditors. Contact each of your grandmother's lenders and explain the situation. You may need to do this as a conference call or on a speakerphone, so she can give a customer service agent permission to speak with you. You'll be surprised at how willing banks are to work with you when you explain what's going on.
  • Open all the mail. Your grandma's only at risk of jail time for ignoring a mailed court summons. Make sure you're not ignoring any letters or assuming that anything's junk mail.
  • Log debt collectors' activity. Match each collection request to the original account. Dispute duplicates or notices that don't connect to your master list.
  • Review credit reports. Use to check your grandmother's master credit reports for other collection activity.

More important than anything else, understand who's really responsible for that outstanding debt. Unless your grandmother opened any of those accounts with a co-signer, she alone bears the burden of paying those balances. Don't let a collector convince you that it's your responsibility, even if they try to tempt you with a balance transfer offer. When your grandmother dies -- and let's all hope that's not for many more years -- those debts get settled through her estate. They won't trickle down to you or to anyone else in your family.

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