Although only a small segment of the American population, sovereign citizens have managed to cause significant headaches for commercial lenders over the past several decades. While their primary antagonists are typically government agencies, sovereign citizens have developed a host of pseudo‑legal theories and tactics aimed squarely at avoiding private debts and obstructing creditors. This article provides lenders with a clear overview of core sovereign citizen beliefs and highlights common documentary indicators that a prospective or current borrower may subscribe to this ideology. Who Are Sovereign Citizens? “Sovereign citizen” is a broad and imprecise label encompassing an ideologically diverse range of individuals and groups who share one foundational belief: that the United States government, as presently constituted, is illegitimate and lacks authority over them.1 The most commonly held sovereign citizen beliefs rest on a distorted understanding of American history centered around two dates: 1868 and 1933. In 1868, adherents believed that the passage of the Fourteenth Amendment created two classes of citizens: (1) “de jure” citizens governed only by what they call “common law,” and (2) “federal commercial citizens,” who are allegedly subject to illegitimate federal authority.2 Sovereign citizens believe, by some artifice or another, that they are or have become de jure citizens and thus are exempt from statutes and regulations, and the Uniform Commercial Code (UCC).3 Second, in 1933, sovereign citizens contend that the United States declared bankruptcy when it abandoned the gold standard.4 In their understanding, in place of the gold standard, the federal government created separate “strawman” identities for every American at birth linked to secret United States Treasury accounts, which contain vast sums of money — sums of money that the government now uses as collateral.5 The strawman identity, they claim, is signaled by the appearance of the person’s name in ALL CAPITAL LETTERS on government documents and financial instruments.6 Through use of the correct pseudo-legal language or document rituals, sovereign citizens believe that: (1) they can access the funds in these imaginary strawman accounts and (2) any debt, contract or legal obligation only binds their strawman identity, not their real “flesh-and-blood” self.7 While adherents come from all walks of life, this ideology particularly attracts individuals experiencing severe financial distress or extreme frustration with government or banking institutions. For lenders, the practical risk is immediate: Sovereign citizens can increase servicing costs, create friction in default proceedings, disrupt collections and occasionally pose safety concerns for frontline staff. Recognizing early indicators can significantly reduce these risks. COUNSELOR’S CORNER Sovereign Citizens and Debt-Avoidance Indicators Steven M. Winston, Baird Holm LLP 18 NEBRASKA BANKER
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