In the middle of a severe recession, you’d expect creditors to make their rules a bit more amendable so as not to overburden those who have already lost their homes and quite possible, their livelihoods.
But of course, where the supposed superiority and wisdom of the market is concerned, such an expectation is pure fantasy. In fact, when people are struggling, it seems, the opportunities to profit off of their miseries become even more plentiful. Creditors and collection agencies are raking in millions.
The New York Times reports that “[o]ne of the worst economic downturns of modern history has produced a big increase in the number of delinquent borrowers, and creditors are suing them by the millions. Concern is mounting in government and among consumer advocates that the debtors are not always getting a fair shake in these cases.”
Bankruptcy can clear away most debts. Yet sweeping changes to federal law in 2005 — pushed by the banking lobby — complicated that process and more than doubled the average cost of filing, to more than $2,000. Many low-income debtors must save for months before they can afford to go broke.
In some states, courts allow creditors to charge high interest rates for years after a lawsuit is decided in their favor. In others, creditors can win lawsuits by default and seize wages and bank accounts without a case ever appearing before a judge.
Lack of participation is the most fundamental problem. Some consumers do not even know they are being sued; the people who are supposed to serve them with formal notice have sometimes been caught skipping that step and doctoring the paperwork.
In far more cases, consumers are served but still do not offer a defense. Few can afford lawyers; others are intimidated or confused. In their absence, judges can offer little relief.
What collection companies do is perfectly legal. But going after those who have the least ability to pay back their debts and garnishing their wages, when they often have just enough to survive, is ruthless.
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