The Profound Impact of Debt Collection Lawsuits on Low-Income Americans
consumer law
Consumer Law Unit
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For the past few years, ProPublica has performed extensive research about how state court systems are used to collect consumer debts across the country.  Paul Kiel’s latest story, “So Sue Them: What We’ve Learned About the Debt Collection Lawsuit Machine,” provides a concise account of the devastating and profound effects that debt collection lawsuits have on millions of Americans.

The multi-year study found that debt buyers filed more collection cases than any other type of plaintiff in most courts across the country.  Debt buyers purchase distressed debt, such as defaulted credit card accounts, for pennies on the dollar.  An illustrative example of the growth of the debt buying industry and its use of the court system can be found in New Jersey, where the number of court judgments obtained by debt buyers went from a mere 500 in 1996 to 140,000 in 2008.

In the vast majority of these cases, the defendant debtors represent themselves, while the plaintiff creditors are always represented by attorneys.  What’s more, it is the debtor’s burden to identify any mistakes regarding the account or any defenses they may have to the claim – and there is good reason to worry.  One collection attorney in New Jersey filed 69,000 lawsuits in one year, and admitted that it took him as little four seconds to review a lawsuit before filing.

Millions of Americans live in fear that, at any moment, their wages or the money in their bank accounts could be seized to collect an old debt.  Yet persons labelled as “debtors” may not garner much sympathy.  As Kiel’s piece explains:  “It’s an easily ignored part of America’s financial system, in part due to a common attitude that people who don’t pay their debts deserve what’s coming to them.”  This is a grave misconception.

Legal Aid’s consumer attorneys represent low-income debtors against abusive debt collection practices.  Our clients want to pay the debts they actually owe, but many have legitimate concerns about the accuracy and merits of the debt collectors’ claims.  Many of our clients fell into debt due to a loss of income after unforeseen changes in circumstance, such as a job loss or a disability, and wage garnishment and bank account seizures only exacerbate the problem.  ProPublica found that in 2013, workers earning between $15,000 and $40,000 a year were the most likely to experience a garnishment.  Federal and D.C. law allow creditors to garnish 25% of a debtor’s disposable income.  Creditors have free rein to garnish any amount of money available in a bank account, and it is up to the debtor to be aware of and to claim any exemptions that may apply in his or her state.

For low-income families living paycheck to paycheck, the garnishment of wages and banks account funds leaves them unable to pay rent, cover utilities, or put food on the table.  Substantial reforms are necessary to protect vulnerable debtors living in poverty.

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