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  • As looming personal debt crisis emboldens collectors, Philly small claims court needs a bigger role

As looming personal debt crisis emboldens collectors, Philly small claims court needs a bigger role

By on March 23, 2021 0

Philadelphians are racking up huge debt. An October survey by the Pew Philadelphia Research and Policy Initiative found that almost 1 in 3 is behind on their credit card bill. And the Census Bureau recently discovered that until the end of February, 35% of Philadelphia households metropolitan area struggled to afford usual household expenses.

In addition to a tidal wave of expulsions expected when the moratoriums expire, the pandemic has laid the groundwork for a debt crisis. Much of that will be played out in the courts – in Philadelphia, that means the Small Claims Court of the City Court, a sibling of the landlord-tenant court where evictions are filed.

“LEARN MORE: More needs to be done to help indebted black and brown Philadelphians | Notice

A new report from Community Legal Services and Reinvestment Fund reveals a number of worrying realities in debt collection cases: lack of legal representation of debtors, unreliable notification service, and a system that allows large corporations to wield enormous power, often in the absence of a judge or the debtor of the debt.

According to the report, 84% of the 90,809 small claims files filed in Philadelphia between January 2016 and April 2020 were filed by just 10 entities, with the first four having filed nearly 60,000 files. These include companies like Midland Funding, which makes a profit by buying and collecting debt, and banks like Capital One.

Black residents are more likely to be sued in small claims court and are involved in cases with lower claims amounts than other races. It is well documented that Black people get worse terms on credit and loans. The new report suggests that collecting these bankruptcy deals is also more zealous.

Echo questions examined by this committee on the service of notices in eviction cases, the report finds that between 2016 and 2020, a quarter of cases were dismissed because documents could not be properly served. In the majority of other cases, defendants lose by default, which again raises questions about the meaning of notices. Defaults mean that liens can be placed on defendants’ homes and frozen bank accounts without notice or consideration of the merits of the claim.

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Legal representation has a significant impact on the outcome of cases. About a third of those represented by a lawyer win their case, compared to 1% for those who are not. And yet, only 6% of defendants appear with a lawyer. Unrepresented defendants do not appear before a judge but negotiate a payment agreement with the recovery lawyer. A breach of the agreement allows the collector to sue the bank account and property of the defendants even years later, once the debt has grown along with the interest.

Small claims court cases cost less than $ 12,000, with almost half of claims under $ 2,000. These relatively small amounts can have a big and long-term impact on people’s lives.

A February Pew Report Highlights Philadelphians’ Experience. Pew interviewed defendants in small claims court in 2018. A staggering 85% said they believe people sued in small claims court need a lawyer. Less than half found it easy to understand what was going on in court. The report also shows the fallout from debt collection: 22% of those who appeared in court fell behind on bills or disconnected utilities, and 16% went without food and other basic needs. in order to pay the debt collectors.

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To their credit, the leaders of the Municipal Court, including President Justice Patrick Dugan and Justice Matthew Wolf – the new civil division supervisor of the court which includes both the landlord-tenant and the small claims courts – have, in recent months, addressed the issues raised by notice before an eviction is served. Last month, after an editorial on the issue, the court began including the time and method of serving final eviction notices in the file information.

Like the housing court, defendants in small claims court need more information and improved service to minimize default judgments. The court might consider requiring documentation to support the fillings, at least ensure that fraudulent claims are not pursued.

The impact of debt collection cases, although less traumatic in the immediate term than evictions, could ultimately do just as much harm. This new research and welcome attention to debt collection brings much needed scrutiny to a justice system that has remained opaque – and that can have a disproportionate influence on people’s lives.

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