from Hacker News

Debt Collectors Are Transforming the Business of State Courts

by burritofanatic on 5/7/20, 2:40 PM with 174 comments

• by netcan on 5/7/20, 4:47 PM

  There have been journalists & researchers who covered these debt collectors at court. When defendants showed up, organised, they usually won.

  The debt collectors' lawyers didn't arrive prepared to win, because most people didn't show up. If you can win 85% of cases just by showing up, why bother.

  A court system that allows these dynamics to dominate isn't serving well.

• by ilamont on 5/7/20, 6:25 PM

  I took a company to small claims court about 10 years ago. In my state at that time, the max you could sue for was a few thousand dollars (now it's $7k, https://www.mass.gov/service-details/small-claims-court). It was run by a magistrate, not a judge, and AFAIK no ordinary citizens who had brought cases (including myself) had a lawyer to represent us. No surprise there ... the small claims courts are designed to work this way, so ordinary people can bring cases if relatively small sums are involved.

  Most of the defendants (which were small or large companies, some local and some national) in these citizen-brought cases didn't even show, but those who did typically brought a lawyer to deny the charges, and were usually asked by the magistrate to work out a settlement in the hallway.

  Excluding the local small claims plaintiffs such as myself, about half the docket consisted of national credit card companies suing local debtors. The lawyer for say BOA would come in with a list of 10 local people being sued for amounts under the small claims threshhold. Maybe 1 in 4 defendants in these cases did show up, and were asked to work out a settlement in the hallway. If the local person being sued didn't show, the default judgement was for the credit card company with treble damages, putting these people further in the hole.

• by pnw_hazor on 5/7/20, 8:51 PM

  Many debt collection cases will disappear if the alleged debtor files an answer (in court) to a debt collection complaint.

  Filing answers is relatively simple and doesn't cost anything.

  Depending on the jurisdiction, filing an answer basically puts the brakes on the case because it is not worth it for the debt collector to pursue it any further. Their business model is based on default judgments.

  Eventually, after a year or so, if no action has been taken, the court is likely to dismiss the case (or you can ask them to).

  Also, debt collection law has a lot of federal consumer protections and often more protections at the state level. Thus, it is not uncommon to run into debt collectors that are violating fed or state laws. Raising such issues also makes the case go away.

  Of course, your mileage may vary depending on local laws and the nature of the debt or contract breach. But when I practiced little people law (before I sold out and went into IP law) I did this a few times and it worked without issue.

  Thinking about it now, I guess a debtor-side lawyer should be involved, but defending such cases require hardly any effort on the part of the lawyer, so again I wonder why there are not debt relief orgs doing this. I believe fighting back just a little would significantly reduce the predatory practices of the volume debt collectors.

  I imagine debt relief agencies don't fight because I think many are funded by the credit industry. So they direct debtors into payment plans rather than trying to shut down the predators.

• by Aloha on 5/7/20, 5:07 PM

  The single largest thing we can do is undo the changes to bankruptcy law signed in 2005, it removed bankruptcy as a tool of the poor to discharge excess debt. It's caused there to be very little downside to lending, and lead to an explosion of debt.

• by WD-42 on 5/7/20, 4:25 PM

  Imagine working for a company that buys up poor people’s debt in order to sue them.

• by joshuaheard on 5/7/20, 8:02 PM

  I do commercial collections (B2B). The article states, "Unlike most court rulings, these judgments are issued, as the name indicates, by default and without consideration of the facts of the complaint—and instead are issued in cases where the defendant does not show up to court or respond to the suit." I am licensed in California and Texas, and in both states one must "prove-up" a default before judgment is entered by presenting a "prima facie" case. In other words, you must prove your case before a judgment is entered, even if the defendant does not show up.

• by Finnucane on 5/7/20, 6:29 PM

  "Civil caseloads dropped more than 18 percent from 2009 to 2017. Although no research to date has identified the factors that led to this decline, "

  I might make a guess that the efforts of our corporate overlords to force everyone into nonjuducial arbitration has something to do with it.

• by D13Fd on 5/7/20, 4:28 PM

  It’s not surprising that the percentage of debt claims has doubled when, as the article notes, consumer debt levels tripled over the same period.

• by 6510 on 5/8/20, 1:01 AM

  What a depressing topic. Since one is responsible for his own debt and just forgiving it is unfair to those pulling their own weight perhaps the small amounts the article talks about should play part in setting the height of an initial basic income. If the income is guaranteed it can at least pay the interest over debt. It could become more interesting to get payments rather than sell peoples property and ruin their lives (and potentially their income) with all the burdens on society it brings.

• by hash872 on 5/7/20, 10:10 PM

  I'd be interested to understand how this works in practice, especially small claims court (which is probably where many credit card debts end up at). From my understanding, small claims judgments are very tough to actually enforce, no longer show up on your credit report, and the court system does nothing to help you collect. Without getting into moralizing and just from a pure P&L perspective- how can it make financial sense for a big company to have one of its attorneys spend the day in court, when you're probably not going to collect on the debt....?

• by LatteLazy on 5/8/20, 11:16 AM

  I actually think the current system works well. The only people having a bad time are people who borrow AND don't repay AND refuse to work with their lender AND refuse to come to court.

  And remember, there is no free lunch here. Making life easier for borrowers who can pay but won't just means the rest of us have to pay more for out legitimate borrowing.

• by llsf on 5/7/20, 6:54 PM

  Seems like there are some money left on the table.

  Should someone build a small company to defend all those people solely based on some contingency fee (well a tiny percentage of what they owe or would pay if they lose).

  If I owe $5,000, a lawyer takes the case, and prevent me to pay the $5,000 for a $500 fee, and I never hear again about the debt collector, that seems a win-win.

  Those debt collector would start to think twice before going to court, and if really working, debt collector would start to think twice before buying debts at the first place.

  It could be automated, with a single website, where I enter few details about my case (or the website contacts me based on scrawling the dockets), give me free advices to fight it myself (e.g. ask debt collector for all communication to only be done by mail, as allow by law, ask them for proof of debt, etc.). And if it escalate to court, then a lawyer would be assigned to represent me.

  Looks like some software could fight this court scaling issue, by fighting before it goes to court, and then making it less predictable for debt collector to go the court route.

• by brenden2 on 5/7/20, 4:17 PM

  It bums me out that people who need the most help in life receive the least

• by everybodyknows on 5/7/20, 6:50 PM

  > Texas is the only state that reports on all types of cases, including outcomes, across all courts.

  Texas leads the USA in judicial transparency! Sacramento, you got some 'splainin to do.

• by Spearchucker on 5/8/20, 9:35 AM

  It would be hilarious if it wasn't so tragic. Taking someone to court for not paying a debt and then (if severe enough) sending them to prison ends up costing the state, and tax payer, a lot more than just writing off the debt. It's a vicious circle where (on average) only the debt collector wins. It's one of many scenarios (another being healthcare) that point towards a social (not communist) solution being the only way. Civil War usually starts when a significant portion of a population can no longer feed itself...