Opinion: Debt collections are clogging Michigan courts. The rules aren't fair.

Brian Zahra and Angela Tripp
·4 min read
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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
Brian Zahra
Angela Tripp
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:

  • Michigan consumers are typically on their own without a lawyer to navigate these lawsuits in court. Defendants are sued for an average claim amount of $1,600. While less than 0.5% of Michigan defendants in debt collection cases have formal legal representation, the opposite is true for the litigating companies — a total of 96% of plaintiffs in debt collection lawsuits are represented by an attorney.

  • Most debt collection cases in Michigan (68%) end in a judgment that is entered in favor of the debt collector, without a hearing before a judge or jury.

  • Three in four debt collection cases that reach a judgment end with a court authorizing the seizure of a debtor’s assets, wages and even state tax returns. Such seizures are rare in other states, but they are commonly used across Michigan.

  • Consumers living in majority Black communities are twice as likely to have a debt collection lawsuit filed against them, and they have higher rates of receiving a default judgment or being garnished than those living in majority white neighborhoods.

In addition, Michigan’s court rules and procedures have failed to adapt as debt collection cases have increased in volume. Consequently, the commission's report recommends:

  • Changing court rules to help ensure that consumers are notified of the lawsuit filed against them.

  • Increasing the amount of information required in a debt collection complaint to help ensure that there is sufficient evidence to support any default judgment that may enter.

  • Creating court forms that consumers can easily understand and use.

  • Developing alternatives to litigation that help creditors, consumers, and courts reach equitable resolutions to debt collection cases.

The Michigan Supreme Court will be reviewing these recommendations and taking action in pursuit of the commission's goal of a civil justice system that is accessible to all. In addition, the other branches of government can take steps to tackle access to justice problems identified in the report. We might not be able to do anything about death or taxes, but working together, we can do something about access to justice in debt collection cases.

Brian Zahra and Angela Tripp are the chair and vice chair of the Michigan Justice for All Commission. Zara is a Michigan Supreme Court justice.

This article originally appeared on Detroit Free Press: Opinion: Michigan debt collections rules must change