Debt Collections Are Clogging Michigan Courts

April 9, 2023 11:48 pm
Collections Intelligence
Modern Recovery Management
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Brian Zahra and Angela Tripp

Ben Franklin famously wrote: “In this world, nothing is certain but death and taxes.” If Franklin were writing today, one more certainty would be added to his list of the inevitable — debt.

In Franklin’s time, debt was something only afforded to the rich. But now, according to the most recent statistics, American families are carrying nearly $1 trillion in credit card debt. That’s more than $6,500 for the average family, not including what is owed to the gas or electric company, for a car loan or health care.

Not surprisingly, as consumer debt rises, more and more people become unable to pay those debts. More than a quarter of Michigan residents with a credit report have at least one debt in collections. And just as families are awash in debt, Michigan courts are flooded with debt collection cases — more than 200,000 cases in 2019. This makes up 37% of all civil cases filed in district court, second only to traffic cases.

Brian Zahra

Angela Tripp

This rising tide of consumer debt is why the Michigan Justice for All Commission decided to take a deep dive into the numbers to better understand debt collection in our state and to determine if any systemic changes could improve the process. The comprehensive report revealed over half of the debt collection cases that dominate Michigan’s civil courts are filed by five national companies that purchase credit card, medical and utility debts for pennies on the dollar from original creditors.

Of particular interest to the commission, researchers found that consumers in debt collection cases rarely have representation, while creditors are almost always represented by lawyers. This typically results in the entry of a default judgment against the debtor. However, when both sides have legal representation, cases are much more likely to be dismissed or reach a settlement, rather than by default judgment, which often enters without a meaningful hearing to test the validity of the claim. Clearly, this imbalance in representation makes debt collection an access to justice issue that falls squarely within the the commission’s mission.

With technical support from The Pew Charitable Trusts, January Advisors and the Joyce Foundation, the commission debt collection work group solicited input from a wide range of stakeholder groups — including attorneys, legal aid representatives, advocates and court staff — to inform its recommendations. With this input, the report details a roadmap for the judiciary to make data-informed innovations and improvements to the process of debt collection that will make Michigan a national leader in fairness and access.

As a former trial court judge and as a legal aid attorney, we understand how difficult it is for unrepresented litigants to navigate court rules and procedures. For parties without lawyers, the complexity of the system is a barrier to the fair administration of justice. And while a lawyer for every consumer is expensive and unrealistic, this groundbreaking report will help us improve how trial courts handle debt collection cases to make the process easier for people to navigate and, as a result, more equitable, efficient and consistent.

The report’s key findings include:

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