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THE COURTS AS COLLECTION AGENCIES

Disputes involving organizations as plaintiff and individuals as defendants are most often triggered by disagreements over property and money. Such disputes occur in the creditor- debtor relationship, where the creditor is usually an organization such as a collection, finance and loan company, car dealership, department store, or hospital. In these situations, there is a gross power disparity between the debtor and the organization. To use our earlier terms, the organization is typically a repeat player when it comes to the law, while the debtor is a one-shotter. This means that the organization has much more legal knowledge and resources than the debtor and can use these advantages to win any legal action it brings against the debtor (Goldberg et al., 2012).

Robert A. Kagan once commented, “If the extension of credit is the lifeblood of a dynamic commercial society, the forcible collection of unpaid debts is its backbone” (1984:324). When debtors default on their contractual obligation to make payments, the standard legal remedy is for the creditor to sue in civil court. The purpose is to establish the legality of the debt and its amount. Of course, creditors “hope to collect the debt by invoking the power of the court, but even if they do not collect, a judgment against the debtor is still of value for income tax purposes. Bad debts are worth 50 cents in deductions on every tax dollar” (Caplovitz, 1974:191).

A creditor who is successful in court obtains a judgment against the debtor. Once obtained, there are a variety of legal remedies available for collecting the judgment, including garnishment, liens, and the forced sale of the debtor’s property. To define some terms, a garnishment is a court order directing someone who owes money to the debtor; a lien establishes a creditor’s claim on property (such as a house or a car); while a forced sale, such as foreclosure, involves seizure and sale of the debtor’s property at an auction, with the proceeds then turned over to the creditor to satisfy the judgment.

Lenders will continue to hold debtors responsible for the difference between what they were able to recover through forced sale of a property and the actual amount owed on it. For example, if a car is repossessed, the lender will try to sell the car, and because cars lose their value over time, the sale price the lender achieves will be substantially less than what the debtor paid—or even owe. With lenders having no motivation to seek the best price, the car is most likely to be sold in an auction to used car dealers, and the debtor will owe the remainder. So, if someone still owes $10,000 on a car and the lender sells the car for $3,000, the debtor will still owe $7,000 on the car that he or she no longer owns. If the lender cannot collect, the debt will likely be assigned to a collection agency with extra fees, charges, threats and hounding, and a likely scarred credit report.

Before going to court, a creditor may resort to a number of social pressures and sanctions of varying severity, ranging from impersonal routine “reminders” and dunning letters or telephone or email appeals to pressure the debtor to pay any money owed (Hobbs, 2011). Creditors sometimes resort to unusual extrajudicial methods of collection. For example, a London firm once used a rather unconventional method of extracting money from debtors—smell: “Smelly Tramps, Ltd. is just what it sounds: a motley crew of ragged, foulsmelling tramps, who specialize in dunning particularly evasive debtors. The tramps are really otherwise respectable chaps, dressed in disgusting clothes and treated with a special stomach churning chemical” (Economist, 1979:104). Their technique was simply to sit around the victim’s office or home until he or she signs a check. A cable company in New York once used another unusual dunning technique to persuade customers to pay their bills. Instead of cutting off service completely, the company filled each of its 77 channels with C-SPAN’s programming. Collection of overdue balances improved dramatically after this change occurred (U.S. News & World Report, 1995).

When such dunning efforts fail and creditors have exhausted nonlitigation alternatives, they are likely to sue. A characteristic of most civil suits for debt is that the plaintiff usually wins by default. A major reason for this outcome is that most defendants do not retain an attorney. In fact, many of them are not present when their cases are heard. Their absence is treated as an admission of the validity of the claim, and a default judgment is entered against them. An early study found that such judgments are rendered in over 90% of consumer cases (Caplovitz, 1974).

Several circumstances explain why defendants fail to respond to a summons and to appear in court. Some recognize the validity of the creditor’s claim and see no point in attempting to contest it or cannot afford an attorney to do so (Hobbs, 2011). Others may simply find it impossible to leave work (with consequent loss of pay), travel to court, and spend most of the day waiting for their cases to be called. The fact that most courts are open from 9 A.M. to 5 PM., hours when most debtors are at work, further contributes to default judgments. At times, the wording of a summons is so complicated and unclear that many debtors simply cannot grasp what is at stake or that they must appear if they are to avoid a default judgment. Others simply do not know that they are being sued. Instead of properly serving the summons, process servers in some areas (because of the inability to locate debtors or the fear of going into certain neighborhoods) destroy it and claim it has been served. Although accurate statistics on the frequency of such “sewer service” do not exist, it is evidently commonplace in many cities (Caplovitz, 1974). These individuals learn about suits against them the hard way—when a garnishment or eviction notice is served.

Although we have focused on suits for debts, there are a number of other important types of actions initiated by organizations against individuals. For example, real estate companies regularly initiate legal action in the form of evictions against unknown thousands of tenants, while the IRS files suits against individuals (and at times organizations) for back taxes or for tax evasion. In all such suits, plaintiffs can usually expect to win for the reasons we have outlined. In the legal arena, Goliath organizations usually beat David individuals.

 
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