Debt Collector’s Getting Their Day In Court
Sometimes our legal system amazes me. I mean, who would have thought that a woman could sue McDonald’s for burning herself with hot coffee? I don’t think many people believe in the ‘innocent until proven guilty’ mantra as evidenced by the good number of innocent people that go to jail, only to be determined later that they are, in fact innocent. In short, I think the whole justice system is in need of an overhaul.
In Chicago alone, more than 119,000 civil lawsuits against alleged debtors are swamping the courtrooms. It has been estimated that at least half will result in judgments allowing debt collectors to garnish wages, seize bank accounts, and file liens against homes – all because people are falling behind during the high prices and credit crunch that is affecting the nation.
To be sure, these people still owe the money. I don’t think anyone is suggesting that they don’t. But I have a hard time seeing the justice in garnishing a portion of a retiree’s social security – the only money they live on – for debt repayment. Retirees on limited income are getting hit hardest because of higher medical bills. When they fall behind on their bills due to medical problems, there should be a different alternative than simply taking them to court.
Even more interesting is that there are cases making it into the courtrooms for debts that have already been paid. A resident of Chicago started receiving phone calls from a debt collector and their law firm demanding payment or they would take her to court. She repeatedly told them that the debt had been settled the previous year AND she faxed over the release letter as proof. But, they took her to court anyway.
Apparently, the woman and her lawyer didn’t show up in court because they had been assured by the debt collectors that they would investigate her complaint, but because they weren’t there, the judgment was awarded against her – a move that would allow them to garnish 15% of her wages. Now, it seems to me that the law firm representing this company should have been aware of the “complaint,” but the way they phrased it was that the judgment was an innocent mistake and that they had vacated the judgment and dismissed the suit when they learned of the complaint.
Innocent for whom? Certainly not for the woman who paid the debt off a year earlier. The law firm should have practiced due diligence to make sure that the files were in order – particularly since they also received copies of the release letter. That wasn’t an innocent mistake; that was a waste of taxpayer’s dollars for not having their ducks in a row.
This seems to be a reflection of things to come as the credit crisis gets worse; the remnants of easy credit gone sour and a collections industry determined to get paid. But at what point does the justice system say enough is enough? The government is talking about bailing out lenders who just handed out money to people who weren’t qualified. If such a program exists for lenders, then something similar should be available to consumers.
I’m not suggesting that all debts should be wiped clean. And I’m not suggesting that this type of program be available for everyone. Deadbeats who just don’t want to pay their bill can have their wages garnished as far as I’m concerned. But, those that have experienced job loss, medical issues, or something along those lines should have a system in place where they can seek help. I think a type of structured settlement where the individuals can have late fees and things reduced to help lower the debt would be a start.
Now, along with that, I think these people should be required to take credit counseling classes. Part of the problem is their spending patterns and not having any emergency fund to fall back on. The economy is not solely to blame for everyone’s financial problems.
I’d love to hear your thoughts on this. Is it justice to have that many lawsuits clogging the system? Am I wrong in my opinion that if the government is going to help lenders, they should institute a program to help consumers?
Related posts:
- Shedding Debt vs. the Credit Score
- Auctioning Debt to the Highest Bidder?
- How to use The Fair Debt Collection Practices Act to your advantage
- Should You Pay Off Old Debts?
- Surprising Purchases that Put People In Debt
They have that already – it’s called Chapter 13 bankruptcy.
What we really need is a better way to hold collection agencies accountable. If getting it wrong can have a seriously negative effect to the agency’s bottom line there would be a lot fewer ‘mistakes’ and a lot less litigation. In professional collection cases I believe legal costs plus expenses should be an automatic award if the defendant successfully defends or the suit is dropped. Make going to court expensive for the frivolous or ill prepared cases and they will stop bringing them.
Proving a debt and payment history is little more than record keeping so legitimate cases shouldn’t have much of a problem successfully prosecuting the real deadbeats. Binding arbitration needs to die a horrible death yesterday which would open the way to impartial settlements in the courts (and probably still fewer of them – it’s better for a creditor to work something out with the debtor when they don’t have a virtually guaranteed win as with a creditor using an arbiter). Legitimately insolvent debtors from some unforeseen cause would then have a greater chance of working out a reasonable settlement without needing a service or seeking Chap 13 protection.
No, I’m talking something different than bankruptcy. They also have Chapter 11 I think it is, for businesses but the government is still looking to bail lenders out of their situation.
Chap 13 isn’t like Chap 11 or 7. In Chap 13 you pay back the debt but the court protects you from creditor harassment. The court handles payment distribution so it’s very much like a credit counseling service only the court has the authority to set payments rather than negotiate them. There’s no bail out – you still pay the debt.
I do agree with you Kristy, there is a level of accountability that needs to be present when you are a lender especially a sub-prime lender. But on another note a consumer needs to be accountable to do thier own research before entering into a contractual obligation. Too often now with both lenders and consumers you see a finger pointing to the other and taking no personal accountabilitY for their own actions. People (like the McDonalds woman) are using lack of commonsense as and excuse, and the same goes for an arguement for a business who says “we didn’t know any better”. Let the consumer file a chapter 7 and the creditor file a chapter 11 like you said….that is what they are there for. Hopefully lesson learned by that point.