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Why Aren’t Debtors Fighting Their Creditors In Court?

That was the question raised in a New York Times article last year entitled: “Debt Collectors Face a Hazard: Writer’s Cramp." The title half-jokingly summarizes one of the problems associated with large-scale debt collection. The job description for certain employees of debt-buying companies is simply the ability to sign their name. That’s because that is what they do, all day long, sometimes thousands of times a day, executing affidavits for lawsuits which attest that they have reviewed and verified the records of debtors. The records that they are “verifying," however, are often riddled with errors.

One supervising employee of JP Morgan Chase found material errors in 5,000 out of 23,000 delinquent accounts she oversaw last year. These errors included incorrect addresses and incorrect account balances. When she reported these oversights to Chase’s legal department after her manager ignored her discovery, she was promptly fired.

It seems that Chase, as well as many other lending institutions, has little financial interest in getting the facts straight before bringing a lawsuit against their debtors. Considering that most lawsuits filed to collect credit card debts, auto loans and the like are never answered by the debtor, it makes less financial sense to perform due diligence than to churn out thousands of defective claims each year. In addition, the large-volume creditors only collect a small fraction of the money owed to them. This is because the debts are sold to debt-buying companies, who buy millions of dollars’ worth of delinquent accounts for about 13 cents on the dollar. These debt-buying companies, in turn, bring thousands of lawsuits each day [i] with a limited amount of information provided to them by the creditors. Oftentimes, basic account information is all that is given to them. And although court rules mandate that proper documentation, such as the origin of the debt and its history, provide adequate proof, requisitioning this detailed information from the creditor costs more to obtain for the debt-buyer.

Creditors know that most of their legal assaults will go undefended by debtors. As such, they will win a majority of cases as default judgments and then use the court system to freeze bank accounts, garnish wages and place liens on property.

Consumer lawyers are well-aware of these circumstances and defend their debtor-clients merely by pointing out the deficiencies in the creditor’s complaint or proof. These attorneys claim that the vast majority of summonses are not served properly and, therefore, the debtor does not learn of a lawsuit against them until a default judgment has already been entered. One consumer lawyer in Fort Worth, Texas boasts that he has lost only 4 out of 5,000 such cases, based on the rampant filing of defective creditor claims.

So, why aren’t consumers fighting these creditor lawsuits? The strongest theory is said to pertain to the fact that debtors know that they owe money and feel that it is futile to fight. It is also obvious that one who is sued for his/her debt probably cannot afford an attorney to defend. Combined with the fact that few debtors receive proper notice of a lawsuit, it is unsurprising that so many victories by creditors and their debt-buying affiliates are won by unfair tactics. But, such a categorical strategy is abusive to the judicial process and deceptive to debtors. In situations such as these, the law is on the side of the consumer/debtor. Keeping creditors and debt-buying firms honest is a satisfying byproduct of prevailing in court against them.

[i] In New York City alone, over 450,000 lawsuits were filed by debt-buyers in a one-and-a-half year period by July, 2008.

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