Courts Clogged With Debt-Collection Lawsuits

Take a trip to your local courthouse and you are likely to see courtrooms clogged with debt collection cases like never before.

Computer-generated lawsuits are trying to settle debts in a tough economy. Even the Federal Trade Commission now says things have gotten out of hand. When a debt collection case goes to court and the defendant fails to show, he/she can be found in default and lose the case, even when evidence is flimsy.

The New York Times provides some background on the litigation boom:

“The litigation boom has been propelled by fundamental changes in the way debts are collected, particularly for credit cards. In recent years, credit card companies have increasingly sold off debt they have considered uncollectible to debt buyers, usually for 5 cents or less on the dollar.

“The debt buyers, in turn, may try to collect the debt themselves using traditional practices like sending letters or making phone calls to a consumer to try to arrange a payment plan. Increasingly, they are choosing to sue instead.

“Collection law firms are able to handle such large volumes of cases because computer software automates much of their work. Typically, a debt buyer sends a law firm an electronic database that contains various data about consumers, including name, home address, the outstanding balance, the date of default and whether interest is still accruing on the account.

“Once the data is obtained by a law firm, software like Collection-Master from a company called Commercial Legal Software can ‘take a file and run it through the entire legal system automatically,’ including sending out collection letters, summonses and lawsuits, said Nicholas D. Arcaro, vice president for sales and marketing at the company.”

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