Sacramento Metropolitan Area residents who have considered filing for Chapter 7 or Chapter 13 bankruptcy due to too much debt may be curious to know that U.S. courts have seen an exponential increase in law suits filed by debt collection agencies against individual debtors over recent months. Many people may not be surprised that these types of lawsuits have increased during the current economic situation. However, what any debtor should be aware of is that many of these lawsuits are being filed automatically.
The New York Times published an article today that shows Debt Collection agencies have responded to the growing number of credit defaults by using computerized software that files the legal paperwork electronically and almost without any human involvement. This software generates letters, court documents, and legal pleadings on behalf of the debt collection agency. Debt collectors hope to receive up to 50 cents on the dollar owed by getting a court judgment against the debtor and then garnishing the debtor’s wages or property. The leading debt collection firm in New York has been filing approximately 80,000 lawsuits a year in this manner.
Critics of this practice already note the lack of human oversight allows these cases to be filed improperly and/or without the correct debt amounts. Others suggest that these practices are subject to abuse. Often times the collection agencies entire case is based solely on a debtor’s address, name, and alleged balance owed. Since debtors often fail to show up in court to defend against the action, the collection agency receives a default judgment and there is little a debtor can do to challenge the amounts awarded by the court after judgment has been entered. “It’s the factory approach to practicing law,” said Richard Rubin, a New Mexico lawyer who represents consumers against debt collectors.