Debt Collection Lawsuits Often Flawed

The recent foreclosure crisis revealed serious abuses by mortgage companies and collection firms. In many cases lenders would produce inaccurate documents without review, a practice called “robo-signing.” In other cases it was not clear if the suing lender was the rightful owner of the mortgage note. These shoddy practices resulted in a huge government attack on the foreclosure process. Earlier this year the federal government and 49 state attorneys general reached a $25 billion settlement with the nation’s five largest mortgage servicers to redress what authorities describe as “loan servicing and foreclosure abuses.”

Now the New York Times is reporting the same type of abuses in the debt collection industry. In many cases consumer debts are not investigated and important documents are not reviewed prior to filing a lawsuit. “I would say that roughly 90 percent of the credit card lawsuits are flawed and can’t prove the person owes the debt,” said Brooklyn civil court judge Noach Dear, according to the New York Times.

Even when the debt is legitimately owed, companies may not be able to prove the account due to poor record-keeping. Collection lawsuits are often accompanied by an affidavit from an individual claiming to be the “custodian of records” who “reviewed the account.” This affidavit is usually not produced in the manner described by state law, nor is it accurate. The New York Times article states that “The Office of the Comptroller of the Currency is investigating JPMorgan Chase after a former employee said that nearly 23,000 delinquent accounts had incorrect balances.”

Unfortunately, defending a collection lawsuit takes time and money. Most consumers cannot successfully navigate the court process and protect their rights, and hiring an attorney is cost prohibitive. Consequently, big banks and the collection firms face very few challenges to their fraudulent filings. The court enters a judgment against the debtor which can lead to wage garnishments and frozen bank accounts.

If you are facing a collection lawsuit, the federal bankruptcy laws can stop a lawsuit and discharge the debt without a judgment against you. Speak with an experienced bankruptcy attorney and review your options. Bankruptcy is not always the best choice, but it is powerful relief for people who need it.