The pandemic exacerbates the already growing debt problem as many remedies are put on hold
As a corporate debt attorney in New York City, Jocelyn Nager has not only increased the amount of money her clients have owed since the pandemic began, but also the sometimes ruinous consequences of not being able to collect it.
“In many cases you have become a debtor yourself,” says Nager, President of Frank, Frank, Goldstein & Nager. “Suppliers are being hit very, very hard right now.”
As COVID-19 continues to cripple the economy, Nager sees more emergencies on the horizon.
“There will be a number of judgments against companies that are no longer doing business and creditors will never collect the funds they owe,” she says.
Across the country, consumer debt attorney Joshua P. Friedman’s creditor clients are enjoying what he calls a streamlined process, thanks in part to a new online system by the California state courts in Los Angeles County, the was planned before the pandemic and revealed in the summer.
“They actually processed documents much faster and more efficiently than ever before,” says Friedman.
While many Americans remain unemployed, some companies have stepped up their old debt collection efforts as they struggle with less revenue in the sluggish economy. With government offices and courts closed, it is difficult for lawyers to advance cases. On the consumer side, Attorney Gregory M. Fitzgerald says phone cases have been problematic for some of his customers due to technological issues and the cost of using the system.
Fitzgerald, a partner of Fitzgerald & Campbell in Santa Ana, Calif., Would “love it when things move slower” when it delays judgments or garnishments against its customers. The slowdown in these actions during the pandemic has been “a boon to my money-out customers”.
Using technology or hindered by pandemic policies, US debt collection efforts vary by jurisdiction. However, lawyers say two things are clear: fewer people and businesses can pay their bills, and the judicial system’s ability to handle debt collection efforts may not keep up with the surge in filings, which has already started and is only expected to deteriorate . Student debt and federal mortgage-related debt are the only ones covered by national emergency cover, and the courts have struggled to deal with a long-standing surge in debt claims cases. Pandemic guidelines have prevented widespread loan defaults, but experts warn that they are not a long-term solution.
“We’re getting some of the best offers to compare that we may ever have received,” says Fitzgerald. “The problem is that our customers have problems and don’t have a lot of money even when we get better deals.”
These fights lead to more debt collection cases, provided a creditor’s attorney can access a courthouse to file a case. Some debtors may be able to pay for increasingly cheap settlement deals, but lawyers for all types of debtors – from corner shops and individual household consumers owing tens of thousands of dollars to large corporations and suppliers owing millions – are reporting Problems.
“I think most consumers will be hit by the harsh reality if all of these safeguards are lifted,” said Tav Gomez of Morgan & Morgan in Tampa, Florida.
Collections prohibit patchwork
Federal law on CARES stopped foreclosures and evictions on federal loans, as well as payments and interest on federal student loans, and President Joe Biden extended student loan facilitation through September and requested an extension of the federal foreclosure moratorium. However, private debt is only subject to government regulations and internal guidelines of creditors and collectors. US House Democrats tried to change that last May by approving a moratorium on collections through the HEROES Act pandemic relief package, but the bill never made it out of the Senate.
Lenders, from large credit cards to smaller businesses, have eased payment requirements and interest accumulation, and some states, like New York, continue to suspend all debt collection on a month-to-month basis.
Other states have enacted emergency laws or executive orders that stopped vehicle takings, and Colorado, for example, banned extraordinary collections such as garnishments and levies until June 1. Collectors must now inform their debtors about these protective measures as part of an initiative Transparency.
“They just don’t have consumer representation, but every time creditors have representation,” Colorado Senator Faith Winter said in a September panel hosted by the Pew Charitable Trusts and the Aspen Institute I don’t even know them go to court. “
State suits float
Federal agencies regulate collection agencies under the U.S. Fair Collections Practices Act and the nine-year-old Bureau of Consumer Financial Protection, which published a new ordinance in October that allows collection agencies to contact you via voicemail, email, and SMS.
The HEROES Act would have expanded the FDCPA to prevent repossession and garnishment of wages by creditors as well as third-party collectors such as debt buyers. However, due to the inaction of the U.S. Senate, state regulations remain the only active restrictions on corporate and consumer debt, which are typically treated as a breach of contract in state courts.
State courts saw a steady increase in cases long before the pandemic. According to a May 2020 report from 2020, the number of debt collection disputes doubled nationwide between 1993 and 2013 Bank. Debt claims were the most common type of civil litigation in nine of the twelve states where court data are available. The expected continuation of rising cases will only make the congestion worse.
The composition of debt has generally remained the same over the years: mortgage debt has increased every year since 2015, as has debt on auto loans, credit cards, and student loans, which are the largest sources of debt.
The increase in debt collections over the years “is already a fundamental shift in our state’s records,” Texas Supreme Court Chief Justice Nathan Hecht, president of the National Conference of Chief Justice, said during the Pew panel.
According to Hecht, states are trying to adapt, with Texas adopting procedures “very different from a traditional adversarial system” to account for poor debtor representation as debt collection cases in his state have increased 162% in five years – one that “historically” is a debtor-law state. “
Measures include informing debtors about their rights, explaining the collection measures and increasing pressure on debtors to resolve disagreements privately. The state is also creating a “central listing office” for debtors, he said. Many courts across the country do the same, he adds.
Why some debts fell
Many consumers who fell behind in debt in 2020 weren’t necessarily overfunded, says consumer protection attorney Kevin Fallon McCarthy of McCarthy Law in Scottsdale, Ariz. “They just moved from jobs to non-jobs so they don’t have the money to support a payment plan,” says McCarthy. “It feels like 2010 again.”
The second quarter of 2020 brought something America has not seen since the Great Recession: total credit card balances went down. According to the Federal Reserve Bank of New York, this is usually not seen until after vacation spending ceases in the first quarter of a year. A persistent decline in credit card balances (they fell again in the third quarter and rose slightly in the fourth quarter) could be a new symptom of increased lending and reluctant consumers. The decline in the balance in the second quarter was accompanied by a decrease in the overall credit limits for credit cards, which has not been observed since the last quarter of 2012.
Unlike previous recessions, many states have regulations or restricted legal services restricting collections, but these temporary regulatory requirements create a bubble waiting to burst. According to the New York Fed, overall crime rates fell in the second quarter of 2020 due to an increase in forbearance from CARES and voluntary allowances from lenders.
The effects of these restrictions can be seen most clearly in the mortgage space, where the number of mortgages that have moved from premature default to current one has increased and the number of new defaults has decreased “due to indulgence” says the New York Fed. The number of newly taken out mortgages also increased as buyers entered a newly defined market while Forbearance kept others from leaving.
At the same time, the number of new car loans and the number of credit card limits fell as consumers and lenders tightened their belts. But the New York Fed is attributing a decrease in new arrears in these areas to government stimulus packages “and possibly some voluntary leniency options”.
Along with protecting mortgages at the federal level, the CARES Act and then-President Donald Trump’s orders halted student loan payments and accrued interest due to the pandemic. Biden’s extension of the mortgage forbearance programs through June 30th and student loan relief through September 30th are still leaving debtors and creditors in the lurch as the debt still persists.
“Most consumers will be hit by the harsh reality when all of these protections are lifted,” said Gomez. “As we all strive for normalcy, all of these benefits will be gone, but jobs are not back.”