WXMI — A recent report found courts in Michigan need to do more to help people avoid a common ruling in debt collection that lead to lifelong impacts.
On Tuesday, the Michigan Justice for All Commission (JFAC) released a 75-page report which found debt collection lawsuits dominate the state’s civil courts, but people who are being sued do not always know about their case until it’s too late.
“All too often these cases are a lose-lose-lose situation for courts, creditors and consumers,” the report said.
An estimated 26-percent of all Michiganders with a credit report have at least one debt in collections, as do 53-percent of people living in communities of color.
In 2019, debt collection lawsuits compromised 37-percent of all district court cases, which was second in filing rate only to traffic cases.
Ten plaintiffs represented 71-percent of cases filed from 2020 to 2021, significantly higher than other states where debt collection lawsuit data is available.
Gabriel Sanchez, a Grand Rapids lawyer who specializes in debtor defense, says the report quantifies issues he has experienced anecdotally in court over the years.
Michigan law requires plaintiffs to notify people of a lawsuit filed against them, who can then respond to it in court.
However, Sanchez explains creditors and debt buyers will often use questionable tactics that do not make people aware of the case against them. In cases where they do receive notice, he says people do not always take it seriously.
If a person does not respond to a lawsuit within 21 days of being served, the court can automatically enter them into a default judgement, which means a plaintiff can garnish someone’s wages or seize their home to satisfy the money owed.
The report found that default judgements happen in nearly 70-percent of debt collection lawsuits. Of those, 78-percent of creditors and debt buyers seek garnishments.
“I’ve seen time and time again where people come to me after they’ve already been sued and their wages are being garnished or their bank account has been frozen,” said Sanchez. “If for instance you have your bank account taken and seized, I mean that might be your grocery money for two weeks, that might be your entire rent money, and now, you’re looking down the barrel at a landlord tenant case where you’re going to be evicted for non payment of rent.”
According to the report, creditors are almost always represented in debt collection cases, unlike the people being sued.
It found when a defendant is represented, their case is ten times more likely to be dismissed with prejudice and twice as likely to reach a settlement.
However, given barriers to seeking counsel, JFAC made recommendations to the Michigan Supreme Court.
In order to enact them, justices would need to do so through a series of rule changes, which Sanchez says is likely since the Michigan Supreme Court created JFAC.
The suggestions include:
- Modernizing serving of process rules to help ensure that consumers receive notice of the lawsuit filed against them
- Increasing the amount of information to be included in the complaint to help ensure that the plaintiff has provided sufficient evidence to support a default judgment
- Creating court documents and forms that consumers can easily understand and use
- Improving our understanding of debt collection in Michigan through a more optimized use of court records
- Engaging with consumers who have faced debt collection litigation to understand the barriers they encounter in court processes
- Developing pilot projects to find alternatives to litigation that help creditors, consumers, and court
Advancing Justice for All in Debt Collection Lawsuits: Full Report and Recommendations:
Advancing Justice for All in Debt Collection Lawsuits by WXMI on Scribd
“There needs to be more attention paid to whether or not a debt collector that’s suing somebody, even when they’re getting a default judgement, that they actually own the debt and the amount is correct,” said Sanchez. “Courts should be able to ask debt collectors, ‘Produce us evidence that proves this.’ Secondly, we need to get rid of alternate service or we have to at least put restrictions on it. Courts should not be rubber stamping alternate service and too often good faith attempts are not made to personally serve individuals being sued for debts.”
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