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Even Before Coronavirus Hit, Debt Collection Lawsuits Skyrocketed

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The Supreme Court of Texas put a temporary moratorium on some court-ordered debt collections in response to the coronavirus. But before that, the number of debt collection lawsuits in Texas courts was on the rise, according to a new report from the Pew Charitable Trust.

The number of these cases doubled between 2014 and 2018 in Texas.

Debt collection lawsuits were the most common type of case filed in civil court in Texas in 2018 – they accounted for more than 1 in 4 civil cases. Pew Charitable Trust researcher Erika Rickard says most of these lawsuits are for debts of less than $5,000.

“These are generally businesses represented by attorneys who are suing individuals for private student loan debt, credit card debt, medical debt,” Rickard said. “And in these cases consumers largely do not have legal representation.”

When a defendant has a lawyer, they tend to fare better in court. But not only do fewer than 10% of of people being sued by debt collectors have no lawyer, most don’t even show up to court. In 70% of cases, debt collectors win by default.

“The court does not review whether the defendant knew about the case, whether the plaintiff has a valid debt to begin with, whether they’re suing the right person for the right amount, or whether that case was brought in a timely manner,” Rickard says.

Making the case that the debt is invalid or the debt amount is incorrect is the burden of the defendant and not the courts, she points out, but cases settled by default without any scrutiny can have costly consequences for the defendant and for the public.

“Courts routinely order court costs, attorneys’ fees, and accrued interest on debt collection lawsuits,” Rickard says. “And they often open up another avenue of debt collection. This is where we get to the kind of freezing of bank accounts and garnishing of wages that’s a kind of court-enforced collection of a private debt.”

The trend in Texas is reflective of a national trend showing a dramatic expansion in debt collection cases, even as overall civil lawsuits have been on the decline. In 1993, 1 in 9 civil cases were to collect a debt, nationwide. In 2013, 1 in 4 civil cases were brought by debt collectors.

State-level data on debt collections lawsuits is generally poor, and the latest complete nationwide data comes from 2013, making the research difficult, Rickard said. Texas stands out as the only state in the nation that reports on debt collection cases for all its courts.