Court dockets have increasingly become bogged down by debt collections claims over the last decade.
A new report from the Pew Charitable Trusts shows that debt claims account for 1 in 4 state civil cases.
And that was before the coronavirus.
Americans now face a potential surge in debt, bankruptcies and defaults.
Erika Rickard is a project director at PEW and co-authored the report: “ How Debt Collectors Are Transforming the Business of State Courts.”
“Debt collection cases have become the single most common type of civil court case in Nevada and in many states around the country," Rickard said.
She explained that there are a lot of factors behind the growth of debt collection lawsuits but one of the most important is the growth of the debt buying industry.
Debt buyers buy debt for pennies on the dollar and then pursue the original borrower for the original amount of the credit or loan, Rickard explained.
Then when a borrower can't or won't pay the debt, many of these businesses hire an attorney to file a lawsuit. But many consumers don't participate in the court case.
“What happens in these cases is a business with an attorney brings a lawsuit against a consumer who nine times out of 10 does not have a lawyer and in most cases, the consumer isn’t participating in the case at all,” she said.
Rickard explained that often courtrooms have a judge and the attorneys for the bank, creditor or debt buyer but the consumer isn't even there.
"When a consumer doesn’t participate in the court case, that means in most cases its an automatic victory for the debt collector not based on the facts of the case but simply based on who’s in the room,” she said.
The judge's decision in the case can have long term consequences.
“The consequences for these cases can be really severe. Even though it’s a default judgment, meaning the court ruled in default without reviewing the facts of the case, that court judgment carries the weight of any other court judgment,” she said.
With a court judgment, the debt collector can now pursue someone for the original debt and for court and attorney fees.
“Armed with a court order, a debt collector can garnish a person’s wages. They can freeze a person's bank account and seize assets in order to pay that debt," Rickard said.
A judgment can not only add more money to the original debt but it can extend the life of the debt. Most states have a statute of limitations on how long someone can be pursued for a debt but with a judgment, it will be extended for several years.
Rickard said Nevada is actually only one of a handful of states that collects data on debt collection court cases. In addition, the state collects much more detailed information about the cases.
She said that information is vital to finding the best policies to address some of the problems with debt collection court cases.
“That lack of court data really is a challenge to states that are trying to implement new policies because you can’t tell which policies are having which kind of effect,” she said.
Rickard said she hopes her research will help policymakers create laws to address some of the inequalities in the system like making sure both sides are able to navigate the process.
In Las Vegas, there have been temporary stays on some of the debt collection cases because of the coronavirus pandemic, but Rickard notes the stays are temporary and only impact post-judgment collection. She is concerned about how cases get there in the first place and how they're decided without both parties participating.
The pandemic could make the problem worse.
“Most of the data we were looking at reflects times when the economy was strong, and yet still, debt collection cases were on the rise," she said, "You can only imagine with more job loss and families in financial distress that there is going to be an increase in debt and in collections, and of course, debt collection lawsuits.”
Erika Rickard, project director, Civil Legal System Modernization, PEW