Top 3 Questionable Tactics Used by Debt Collection Law Firms
Debt collection law firms are different from your run-of-the-mill debt collectors.
They’re even scarier.
Both groups have nasty reputations for hounding consumers in hopes of collecting outstanding debt – debt that has often been sold and resold for pennies on the dollar. The Federal Trade Commission reports debt collectors (including debt collection law firms) now generate more complaints than any other industry – nearly 200,000 in 2012 alone.
“Debt collectors and debt collection law firms make used car sales persons look honest,” says Shawn Bozarth, a Pennsylvania attorney who uses the back-office support and software services of Morgan Drexen. “Debt collectors buy the right to sue consumers at pennies on the dollar, then attempt to collect the debt through a lawsuit in which they never have to show up. Often they fail to produce any supporting evidence or a person to testify about the truth of the debt or the amount. Debt collectors frequently skirt the edges of debt collection laws.”
The most common complaints involve harassing debtors at home and at work, demanding a larger payment than is owed, threatening debtors (with jail or even physical violence), and failing to identify as a collector.
Law firms, because of their inherent legal muscle and propensity to sue, can go even further in their quest to corner debt-strapped consumers. Here are three common – and questionable – tactics frequently employed by debt collection law firms:
1. Automating Debt Collection Lawsuits
Debt collection law firms have been flooding courtrooms with hundreds of thousands of lawsuits seeking repayment – and they now have high tech help. Many firms are relying on computer software that automates the process of identifying and suing people in debt. These “robo-lawsuits” have been compared with the “robo-signing” controversy that plagued the mortgage industry in recent years. One debt collection law firm in New York State was recently exposed for filing roughly 80,000 lawsuits per year, all with a staff of just 14 lawyers. That amounts to more than 5,700 cases per lawyer. Computer efficiency indeed.
2. Seeking default judgments
So if the cases are so flawed, why file so many lawsuits? In two words: default judgments. The New York Times reports roughly 95-percent of credit card debt lawsuits result in default judgments against the consumer. The reason is simple: consumers don’t show up in court. Some either ignore the summons to appear in court (big mistake), or never receive them. There have been numerous instances of the wrong person with a similar or identical name being targeted. A default judgment is serious business. It clears the way for the law firm or owner of the debt to pursue wage garnishment, property liens and bank account garnishment against the debtor. Default judgments can equal easy money for law firms, debt collectors and creditors – so drowning the courts with lawsuits is a low-risk, high-reward strategy.
3. Seeking settlements during a lawsuit
Sometimes opposing attorneys (when they show up) will try to cut a deal with defendants in the courthouse hallway before they even head inside the courtroom. Often they are looking for people who seem vulnerable, have no legal representation, or may be afraid to appear before the judge. While cutting a courthouse deal is not illegal, often the terms of these on-the-spot settlements are far less favorable than what would occur if the two sides simply went inside the courtroom and told their stories to the judge.
Bottom line: if you are facing a lawsuit from a debt collection law firm, whether the debt is legitimate or not, don’t ignore it. It can cost you plenty. Having an experienced lawyer on your side may be the best way to defend yourself against these questionable tactics.
About Morgan Drexen:
Morgan Drexen provides software and administrative support services to business across the United States, including attorneys who practice bankruptcy and debt settlement as well as tax, personal, and litigation defense. The company’s genesis in 2007 was in the debt settlement arena. Since its founding, Morgan Drexen has provided administrative support services to attorneys who have settled more than $418 million in consumer debt. The company’s focus on efficiency has allowed attorneys to bring financial relief to nearly 12,000 people nationwide, many of whom may otherwise not have been able to afford the services of an attorney.
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