SUED ON DEBT
Changes in the Debt collection industry. The Debt Collection industry has changed dramatically in the last decade and even significantly in the last 5 years. Texas has gone from a state where personal debts were written off as uncollectible to the cutting edge frontier of debt collection. The number of collection cases has jumped dramatically since the Bankruptcy Reform Act was passed in the spring of 2005 because the new Bankruptcy Law makes it prohibitively expensive or unattractive for consumers to file a bankruptcy proceeding. Much of the change in attitude is also fueled by third party debt buyers.
Third Party Debt Buyers. Third party debt buyers buy defaulted credit card and retail purchase installment debt from banks, finance companies, and auto lenders. They buy the debt very cheaply: usually less than 10 cents on the dollar and sometimes less than two cents on the dollar. Phone calls, credit reporting and dun letters are standard. Because they buy the debt so cheaply the cost-benefit ratio of a lawsuit is much more favorable. Therefore, they can afford to be very aggressive in their collection efforts.
Lawsuits and Arbitrations. Third party debt buyers and the law firms that represent them are equipped to file and monitor thousands of lawsuits at a time. (note: for more information on arbitration collections see the section in this website). Lawfirms that represent these creditors have standard forms and computerized systems that allow them to file and maintain thousands of cases in hundreds of different courts. They are largely able to do this because they convince consumers that they have no defenses to the claimed debt. Convincing or preying on consumers who are predisposed to this attitude leads to large numbers of these lawsuits ending up as default judgments.
Defenses to Collection. There ARE defenses to these cases. Many of these debts are so old that they are barred by limitations. Others may have been obtained by an arbitration that did not notify the consumer. Almost all of the debts are inflated by interest, penalties, late fees and attorneys fees that are not allowed by contract or by law. Sometimes a debtor only needs some time to resolve the matter and an attorney can extend the lawsuit and negotiate a favorable settlement.
Dealing with the Judgment. Consumers may admit that they owe A debt to a particular creditor and resign themselves to an inability to pay. Deciding that there is no hope they allow a judgment to be taken. This is dangerous because the judgment can grow at a rapid rate. A current client suffered a divorce related judgment of $1,400.00 in the middle 1980’s. She thought her ex-husband took care of it. He did not. The creditor found her in 2006 and demanded the debt plus interest. After annual compounding of 10% interest the judgment had grown to over $12,000.00! She is now defending garnishments (seizure of bank accounts) and post judgment discovery into her financial ability to pay. The matter has also showed up on her credit report and has tarnished an otherwise good credit history. Clearly it would have been less expensive to deal with the matter twenty years ago.
