119K+ Collection Cases Clog Chicago Courts; Sloppy Practices, "Zombie Debt" Hurting Consumers

In Chicago, Illinois, a story in the Chicago Tribune makes apparent that mortgage foreclosures are not the only cases that are clogging the court system:

• Cook County Circuit Court has been turned into a frenetic debt collections machine, a reflection of easy credit gone sour and a collections industry determined to get paid. More than 119,000 civil lawsuits against alleged debtors are clogging courtrooms, and at least half will result in judgments that debt collectors will use to dock wages, seize bank accounts and file liens against homes, compounding the woes of troubled borrowers.

• But because debt collectors operate on volume—pushing through lawsuits based on little more than lists of names, addresses and alleged amounts due—there are also plenty of instances of mistaken identities, cases where debts are alleged when the bills have been paid and even situations where people have fallen behind and tried to work out repayments only to be hauled in to court. "The system is out of control," said Michelle Weinberg, a supervisory attorney at the Legal Assistance Foundation of Metropolitan Chicago.

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• A new breed of collector has transformed the industry in the last decade, purchasing distressed debt from credit card issuers, retailers and other consumer lenders. Debt buyers usually only pay pennies on the dollar for packages of unpaid bills that include limited electronic information about the borrowers.

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• Consumer groups say the high number of default judgments can mask flaws with the lawsuits. Credit agreements and payment histories are often not included when suits are filed. Instead, debt collectors file an affidavit attesting to the validity of the debt, and it's not unusual for that affidavit to be erroneous, said Bob Hobbs, deputy director of the National Consumer Law Center. [...] In New York, an Urban Justice Center study in 2006 found that in 99 percent of a sampling of default judgments that the evidence used to obtain the judgment did not meet the state's legal standards.

The experience of one consumer victimized by the sloppy practices of a purported creditor and the creditor's attorney was reportedly described as "a perfect example of zombie debt. You pay it, and it comes back to life."

For more, see Debt collectors pushing to get their day in court (More aggressive strategies fill court dockets, result in mistaken identities) (if link expires, try here).

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