Debt Collection Lawsuits: A Growing Concern
In the United States, one in four adults has had a debt turned over to private collectors, according to research from the Debt Collection Lab. Nationwide, major collection agencies file millions of lawsuits every year. For those sued, the outlook is grim, especially since many of these lawsuits demand less than $10,000, an amount often too small to warrant hiring an attorney.
Debt collection lawsuits can be devastating for individuals or families already struggling financially. The majority of these lawsuits demand less than $5,000, making it challenging for defendants to find legal representation. Anne Munoz, a resident of northern Arizona, was sued over a debt she claimed she didn’t owe. Without an attorney, she challenged the case and eventually won, but not without significant personal cost.
“I got the summons on September 17, and from that day until just maybe a week ago, I spent a minimum of five hours a day on my phone doing research,” Munoz said in an interview. “This has cost me money. I wasn’t prepared to have to buy a printer, buy paper, buy ink, buy Microsoft, buy all these things, and they stole my personal time.”
The Consequences of Not Responding
Most consumers who are served a lawsuit don’t respond, leading to a default judgment against them – an automatic win for the debt collector. “Our best estimate is that between 60 and 70% of all these lawsuits end in a default judgment,” said Lester Bird of the Pew Charitable Trusts. “Typically, that’s an automatic win with no judicial review of the case or its validity.”
A Tech Startup Steps In
George Simons, founder of Solo, a technology company, aims to change this by making it easier for individuals to respond to lawsuits or negotiate settlements. Simons was inspired to start Solo during law school when he struggled to find a lawyer to take his case involving a defective car.
Solo offers options to file an answer to a lawsuit and allows consumers to respond to notices from law firms before a lawsuit is filed. The company works with collection agencies to negotiate settlements, potentially saving consumers money on court fees and time.
“The core realization for us is that the consumer and the collector really want the same thing most of the time – to settle the debt at the ideal rate as fast as possible,” Simons explained.
In Arizona alone, SoloSettle has handled nearly 500 cases, with the average lawsuit being around $7,600 but settling for $2,500 on average.
What to Do If You’re Sued
If you receive a lawsuit from a debt collector, take it seriously and be aware of the deadlines to respond. Failing to respond or appear in court can lead to a default judgment. Resources like Community Legal Services offer free services to those who qualify, and the Modest Means Project provides low-cost attorney consultations.
For more information on how to respond to a debt collector or to check if your rights have been violated, the Consumer Financial Protection Bureau offers resources and guidance.
