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Credit Card Lawsuits Become Bigger Reality for Consumers

In recent days stories out of New Jersey and California have both reveled that lawsuits by credit card companies are on the rise.

The New Jersey story, stated there has been a 25% increase in case filed between 2007 and 2010.

In California the courts in Santa Cruz Superior Court are dealing with historically high levels.

The Mercury News story said, “Lawsuits are being filed not only by credit card companies but also by debt buyers that buy, for pennies on the dollar, accounts for which borrowers have stopped making payments. More of those being sued are middle-class families living on their credit cards due to the prolonged economic downturn. At the same time, they’re being targeted by scammers offering to help reduce their debt.”

Those who are sued over a debt have four choices: Answer the complaint within 30 days, do not respond, file for bankruptcy or settle.

I contacted some member companies of the AACC and asked them to share their observations on this situation since they help people settle.

Angelo Anzalone of Active Debt Solutions said:

This is common and we deal with these types of lawsuits with our clients. The logic behind the automated summons machine is to target those consumers that panic, put the lawsuit on the table and prays that it just mysteriously disappears. If a consumer does not file an answer they will be awarded a default judgment and depending on the state can have their wages garnished.

A major reason for the high rate of default judgments is the fact that many people don’t know they have been sued. We have seen many people that never received any notice of lawsuits brought by debt buyers…we call it sewer service. Debt buyers often send notices to old addresses that are no longer valid.

Unfortunately, few debt buyer cases are contested. Most people do not receive notice and are not aware of the court proceedings, and most of those who do receive notice and appear have no legal representation. Court statistics show that less than 2% of people sued by creditors have legal counsel. Most people are afraid or unprepared to defend themselves and Debt buyers take advantage of this to scare consumers into unaffordable settlements on debts that cannot even be proven.

What’s interesting Steve is that by contrast, in the rare event that an individual has counsel, debt buyers tend to abandon cases, presumably because they know they will have difficulty producing the documentation to prove their cases at trial but I feel more so, the debt buyer makes it’s money on the default judgments.

Going back and forth on a file that has representation or an educated consumer who is familiar with court process is a waste of resources. Check out this study on Debt Buyers, just in this example alone, the 26 debt buyers examined in this study filed 457,322 lawsuits in the New York City Civil Court from January 2006 through July 2008 and were awarded an estimated $1.1 billion in judgments and settlements. This is where the real money is made for them. This report will open your eyes to what’s really going on.

Michael Bovee of Consumer Recovery Network said:

I see the increase in lawsuits as more a reflection of the increase in accounts that default in payment due to the recession, than from a change in specific creditor policies and recovery goals.

There are strategies consumers can use to mitigate the risks of being sued when trying to settle accounts, but people who perceive themselves as wanting to do the right thing and pay at least what they can, rather than filing bankruptcy, do get sued.

Being sued for unpaid debt is a show stopper for some people trying to avoid bankruptcy because their wages can be garnished in most states and bank accounts levied. The lawsuit will often be the trigger for a bankruptcy filing. Consumers pushed to bankruptcy in this way were often not well suited to try to avoid filing in the first place.

For others, those most suited to attempt debt settlement, were a lawsuit to occur, it can be viewed as an opportunity to settle and get that debt behind them. Litigation of all flavor are routinely settled out of court. Also, payment options and terms can be structured in order to avoid a judgment being entered thereby avoiding lien levy and garnishment.

It is clear to see how more creditors and debt buyers may turn to suing quickly in an effort to efficiently scare consumers into doing nothing which will result in a judgment. The unintended consequence is the suit may also drive more people towards debt solutions not well suited for them since they will not be in a panic.

READ  Machol & Johannes Are Suing Me Over an Old HSBC Account. What Do I Do? - Steff

If you have just been sued over a debt, read this article before you do anything else.

About the author

Steve Rhode

Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.

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