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The high cost of ignoring a debt lawsuit

You should present a defense in court, even if you can't afford a lawyer.

By Karen Datko Apr 13, 2010 6:00PM

The New York Times told this chilling story recently: A Virginia man was sued for nonpayment of a personal loan. He didn’t show up in court, and the bank won a judgment of $4,750 plus $900 in lawyer’s fees.

 

Over six years, the lender garnished more than $10,000 from his paychecks. After six years, he still owed $3,965.

 

How could this happen?

 

Answer: A lawyer who later took his case for free found that all but $134 of the garnished money had gone to fees, court costs and interest, accruing at 27.55% -- and that it was legal. (Note: The laws vary from state to state.)

Garnishments are on the rise in many locations, the NYT reports, as more struggling people fall behind on debt. Lenders or debt collectors take them to court and win, getting the right to remove money from their paychecks or bank accounts until what's owed is paid off.

Many debtors, the article suggests, missed opportunities to help themselves by not appearing in court. “Lack of participation is the most fundamental problem,” it said.

 

If you’ve fallen behind on your bills, how can you avoid this trap?

  • When debt collectors call, don’t ignore them. Debt collectors are ready to deal, MSN Money’s Liz Pulliam Weston wrote, and she described how to best complete the process.
  • If you’re sued over nonpayment of debt, show up in court. “Don’t ignore a lawsuit summons,” the Federal Trade Commission says. “If you do, you lose the opportunity to fight a wage garnishment.” The NYT said that “creditors frequently lack the documentation to prove their claim, and cases are dropped.” If not, you can explain your hardship to the judge.
  • Can’t afford a lawyer? Go to court anyway, advises NEDAP, an advocate for low-income consumers in New York. “Hundreds of low-income New Yorkers defend themselves in debt collection cases every single day, and many do so successfully,” its Web site says. “Luckily, a debt collection case is relatively simple and straightforward as compared to other kinds of legal problems.”

You may not win -- but that's better than automatically losing or having no say in the outcome. Garnishments, the Times says, can often consume up to a quarter of each paycheck.

 

The article ends with the story of Ruth M. Owens, a Cleveland woman sued over unpaid credit card debt. Disabled, she sent a note to the judge explaining her limited budget.

Robert Triozzi, a judge at the time, heard the case. He found that over a period of several years, Ms. Owens had paid nearly $3,500 on an original balance of $1,900. But Discover was suing her for $5,564, mostly for late fees, compound interest, penalties and other charges. He called Discover’s actions “unconscionable” and threw the case out.

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