I wrote an article on the debt buying industry in February 2014, just before a new study came out. My goal was to help people understand their rights regarding old debt they might or might not owe so they’d know what to do when contacted by a debt buyer. I suspected, based on a situation I went through with my son who didn’t pay a store credit card, that most people don’t know their rights. And I was right.
A study by Peter Holland of the University of Maryland Francis King Carey School of Law was published in the Loyola Consumer Law Review on March 10, 2014. It found that debt buyers routinely use the court system to collect debts, and that they usually win, even when they shouldn’t.
The debt buyers, according to Holland, buy debts that have been charged off, usually by credit card companies, for pennies on the dollar and sue for the full debt amount plus interest and fees. They usually win a judgment that allows them to garnish wages or bank accounts. And they don’t always play fair.
Debt buyers often do not have the required proof necessary to win the judgment and don’t even know whether the debt is even valid but, because few defendants challenge the lawsuit, the creditors typically win in what is called “default judgment justice.” The courts are too busy to wade through all the paperwork from the thousands of lawsuits they see and, if defendants don’t challenge the lawsuit, it’s just easier to award a judgment. The process is similar to the robo-signing that went on regarding foreclosures, only now there’s a new term: “robo-suing.”
The study also found that most defendants do not answer charges at all and that only about 2 percent of defendants use a lawyer. But having a lawyer has a significant effect on the outcome: 70 percent of cases are dismissed when a lawyer handles the case. The number is reversed when a defendant does nothing. People who defend themselves fare somewhere between defendants who do nothing and defendants who have a lawyer.
A Shadow System
Holland’s point is that there’s a secret “shadow system” whereby judgments are made against people with no judge, no trial, no witnesses and, sometimes, not even a courtroom. Decisions are granted to debt buyers by default.
So what should you do if you have outstanding debt and are contacted by a debt buyer?
If you can afford a lawyer, get one. But you can defend yourself against fraudulent debt buyer practices yourself.
- Dispute you owe the debt.
- Make the debt buyer prove it has the right to sue you. (Holland’s study says 90 percent don’t.)
- Serve a formal answer to any lawsuit.
More from this contributor:
What Evidence Do Credit Card Debt Buyers Need to Provide to Court?
A Rose by Any Other Name: Subprime Mortgages Are Coming Back
How Student Loans Have Entered the Predator Loan Category