LOADS OF DEBT
Lawsuits seeking collection from defendants filed in Texas civil courts have soared in recent years
The massive pile of documents crammed into the back room of a small, nondescript courthouse in an industrial area off the 410 Loop in San Antonio carries evidence of a tide of cases overwhelming the justice system in Texas.
Each morning in this room, trucks drop off thousands of copies of credit card statements and contracts from all over the U.S. Lawyers will use the records as evidence in debt collection lawsuits filed against people living in this local jurisdiction.
And, every day, the pile gets bigger and bigger.
In this court and others in Bexar County, debt collection lawsuits more than doubled from 2012 to 2020.
“I’m trying to manage this behemoth, but there are some guidelines I have to follow as well,” said Rogelio “Roger” Lopez Jr., judge for Bexar County Precinct 4, who operates out of the 410 Loop courthouse.
Similar scenes are playing out from Houston to Dallas to Fort Worth as debt collectors sue a skyrocketing number of Texans over claims of unpaid credit cards, medical bills, student loans and other debts, a Houston Chronicle examination has found.
Debt collection lawsuits filed statewide have exploded by 73 percent from 2012 to 2021, according to a Chronicle analysis of data from the Texas Office of the Court Administration.
For the first time in history, the 374,000 debt lawsuits filed in the Lone Star State last year made up nearly half of all civil cases in Texas, which include traffic tickets, landlord evictions and small claims such as disputes between neighbors. The crush of debt cases raises concerns that overwhelmed Texas civil courts can’t adequately review each lawsuit and deliver justice while juggling higher-priority cases, consumer advocates say.
That means judges face pressure to move debt lawsuits quickly to keep their dockets manageable. With only minutes to review cases, judges can miss important details, consumer advocates say. The rapid-fire justice puts a sharp focus on whether defendants can get a fair shake, said Mary Spector, professor of law at Southern Methodist University in Dallas.
“Any public perception that the courts are merely rubber-stamping for the creditors is bad for the system,” said Spector, who directs a law clinic that works on behalf of consumers in debt litigation.
Texas adopted key provisions that have spurred debt collectors to crank out more cases in recent years.
From 2012 to 2020, state lawmakers passed legislation that gave debt collectors more flexibility to file cases in justice of the peace courts, where filing costs are lower and it takes less time to move cases on the docket. The changes, which included actions by the Supreme Court of Texas to revamp the debt collection process in civil courts, ultimately made it cheaper and faster for debt collectors to win judgments, consumer advocates said.
As a result, debt collectors have concentrated their efforts in the justice of peace courts, where debt suits statewide soared by almost 150 percent between 2015 and 2020, according to the Chronicle analysis.
The Supreme Court of Texas, which is responsible for adopting processes and rules to ensure that state courts are efficient and fair, has been alarmed by the rise in caseloads, Chief Justice Nathan L. Hecht told the Chronicle.
“You need to worry about it,” Hecht said. “This is where the public meets the justice system.”
To address those concerns, the Legislature ordered the state Supreme Court to publish new rules that will require debt collectors to provide additional notification to debtors of their rights, he said. The rules take effect today.
Big corporations have highpowered attorneys to manage their interests. When they have a problem, they can ask for help from the state Supreme Court. Hecht said they also can lobby the Legislature to prompt changes in state law.
“But this is about the little guy,” he said. “What the justice system has to do is to provide justice for the people who come to it. We want everybody walking away from the court saying, ‘Well, thank God for the court. I may have lost, you know, I wish that had not happened, but I got a fair shake.’ That’s why it’s so important to work on these cases.”
A Chronicle review of dozens of court documents, observations of legal proceedings and an examination of data on court dispositions found that:
Last year, 45 percent of lawsuits filed in the state’s civil courts were against Texans for debt, according to data supplied to the Chronicle by the Texas Office of the Court Administration, the state agency that collects the data and operates under the direction of the Supreme Court. In 2017, debt lawsuits represented 30 percent of all civil filings.
Harris County saw a similar trend. Last year, debt collectors filed nearly 68,000 lawsuits in the county, an increase of 111 percent from 2015.
Cases settled by default judgment have increased since 2012. That means more cases are decided with defendants not present to fight a claim, and the court cannot weigh both sides equally before making a judgment. The number of default judgments in the Houston region and other large Texas counties totaled nearly 74,000 cases in 2021, an increase of 86 percent from 2012.
No court in the state has seen a more dramatic increase in debt suits than justice of peace courts. JPs, as they are known, preside over weddings, misdemeanors and truancies. Many JPs are not lawyers. Of the hundreds of thousands of debt collection lawsuits filed in Texas in 2021, 80 percent were in JP courts.
The Chronicle interviewed justices of the peace from some of the state’s largest counties about the impact of the case volumes. Many lamented that their courtrooms have been turned into debtors’ courts and undermined public confidence in the justice system.
“It just sickens me,” Lopez said.
They acknowledged that many defendants appear before them who are delinquent on bills and that debt collectors have the right to sue for money owed.
Still, judges worry that an increasing number of defendants do not know their rights. Most don’t have attorneys who can adequately represent them. When facing opponents who have attorneys, defendants can face devastating consequences.
“I make sure these (debt collection) attorneys are very reasonable and not asking for this person’s first-born child,” said Jo Ann Delgado, justice of the peace in Harris County for Precinct 2, Place 1.
Another concern is that the rising caseloads have spiked instances of no-show defendants. When a defendant fails to file a written answer, a judge is expected to declare a default judgment against them, judges said.
Meanwhile, judges are supposed to be impartial. As judicial officers, who serve as referees in debt disputes, they can’t provide legal advice to either party.
“For us, it’s about following our judicial role,” said Ralph Swearingin Jr., who serves as justice of the peace in Tarrant County for Precinct 1.
The Chronicle also interviewed former and current debt collection attorneys who have represented some of the largest firms in the U.S.
Their primary goal is to serve banks and creditors trying to recoup loans and limit losses. However, they acknowledged courts could make the process more accessible to defendants, most of whom want to settle their debts.
“The reason debtors are where they are is that some of them just had terrible things happen to them,” said Riecke Baumann, a Houston creditor’s attorney.
In 30 years of representing clients, including big creditors and local businesses, “I can count 35 or 40 who I thought were crooks — that’s minuscule,” Baumann said.
Yet, when they are served with a lawsuit, many don’t know how to proceed. Baumann said he’s had debtors tell him they didn’t think they could settle a case. “They just think it is impossible.”
A variety of factors explains the amassing of debt.
The pandemic created significant hardships for households, particularly among working-class families and people of moderate incomes, who studies show are more often contacted by debt collectors than those with higher incomes. Those already in debt sank further into the hole.
“People were out of work, unable to make ends meet,” said Sergio De Leon, justice of the peace for Precinct 5 in Tarrant County. “They can’t pay off their credit card, and they can’t pay their rent.”
Texas is second in the nation behind Louisiana with the highest percentage of its population with delinquent credit, making residents here more vulnerable to debt collections. In December 2020, 41 percent had defaulted on accounts that were sent to collections, according to the Urban Institute’s Debt in America report, which is based on millions of
consumer records from credit bureaus. The state’s median amount of debt in collections was roughly $2,100, representing past due loans, unpaid medical bills and credit cards.
Lopez, the Bexar County judge, said he has had many defendants acknowledge they owed the money. Yet they said they could not afford to pay back the charges on their credit card because they are retired or on a fixed income. Many suffered during the pandemic with illnesses and job losses.
“Really, we try to give people as much notice as possible,” Lopez said. “Sometimes, we give notices beyond what is required so that they can come in and try and work something out. But some people just don’t. The reality — you know how the saying goes — you can’t squeeze blood from a turnip.”
Various economic indicators show a difficult situation is likely to get more desperate.
This spring, the U.S. Consumer Financial Protection Bureau reported that credit card companies were expected to hike late fees and penalties due to inflation and other factors. In 2020, fees topped $12 billion.
Debt buyers like PRA Group Inc., one of the nation’s largest debt buyers, informed investors during a conference call earlier this year that the company was expecting a rush of debt collection activity.
PRA Group executives pointed to the latest Quarterly Report on Household Debt and Credit in which the New York Federal Reserve Bank reported an increase of $52 billion in credit card balances in the fourth quarter of 2021 — the largest quarterly increase in 22 years. Overall, total U.S. household debt increased by $333 billion during the fourth quarter to $15.58 trillion, according to the New York Fed.
That outlook is leading the debt collection industry to prepare for more debt collection opportunities, PRA Group CEO Kevin Stevenson told investors during the conference call.
“We believe the volumes will build by the end of 2022,” he said.
‘What justice looks like’
It’s unusually humid for January in Houston, as the city is battling yet another post-holiday surge of the coronavirus variant. Sick patients fill hospital beds, but courthouses are empty.
In Harris County, many justice of the peace courts are holding remote proceedings via Zoom.
In these JP courts, judges are struggling to handle time-sensitive evictions that surged during the pandemic, as well as more routine cases, like traffic violations.
At the same time, tens of thousands of active debt lawsuits jam their dockets, waiting for a disposition. In 2021, debt suits in JP courts statewide exceeded 278,000 cases, a 95 percent jump since 2012. In Harris County, cases climbed by 71 percent in that same time frame, totaling nearly 51,000 cases last year.
One Monday, dozens of faces — mostly debt collection attorneys and some defendants — pop up on a livestream in Harris County Justice Court Precinct 1, Place 2. David Patronella, the judge of the court, is away on business. In his place is Sharolyn Wood, a former Harris County district court judge who faces a full docket she must review in one afternoon.
Like other JPs in Harris County, the court has a significant backlog of active debt claim cases that have not been dismissed or disposed of. Active cases nearly doubled in the county between 2018 and 2021. In January 2018, there were 32,246 active debt cases. By January 2021, that number increased to 63,309, according to January Advisors, a data science consulting firm in Houston.
While the pandemic contributed to the backlog, the number of active cases was already increasing a year prior to the public health emergency, data show.
The challenge: Ensuring a fair process for both sides. On one side are seasoned attorneys who handle hundreds of similar cases each day. On the other side are defendants without attorneys, who don’t know their rights and are apt to make legal blunders.
Wood whips through the early batch of cases in under two minutes.
One defendant provides a general denial that she owes the debt but no evidence supporting it. In under 30 seconds, the creditor wins the judgment.
Another judgment happens in less than one minute.
An hour later, Wood is still on Zoom with a handful of defendants.
“Do you understand what the lawyers are coming in asking for at this time?” Wood told a Houston woman, then dove into a three-minute explanation about debt judgments.
Documents showed the woman hadn’t paid a debt she owed since 2017, Wood said.
“I don’t know if you can still talk to the loan company, the lawyer for the loan company to see if you can work out a deal straight with them,” Wood told her. “But if it doesn’t get done pretty quick, this (debt collector) will be contacting you and following through with all of the things that are listed out in this order to try to get the money to pay off the debt from this judgment.”
The woman shot a blank stare.
“I don’t know exactly where to go from here,’’ she said. “This is my first time doing this.”
Many defendants aren’t warned.
That same month, a judgment for $3,904 was declared against Edgar Ramirez, a Houston widower in his 60s who stopped working months prior to the pandemic to care for his wife, who died from pulmonary fibrosis, a form of lung disease. Her medical care had been expensive. After her medical coverage ran out, Ramirez did not have a job that could absorb some of the medical costs.
“I got into financial problems,” he said. “But I have been trying to get my life back in order and making arrangements to pay off the money I owe.”
In September, he showed up to a livestream to battle the debt claim, but the attorney for the credit card company that sued him didn’t show. The judge rescheduled the matter for November. The creditor’s attorney had asked for a continuance.
When that day came, Ramirez called the court when he couldn’t get on the livestream, but he was told his case had been pushed back to January. The creditor’s attorney had asked for another continuance.
Ramirez didn’t show up to the January livestream because of a work conflict. But the Chronicle observed the hearing in the Harris County jus
tice of the peace court.
“I need both parties present,” Wanda Adams, justice of the peace for Precinct 7, Place 1, told the creditor’s attorney. “I’m sure you understand that we have to hear evidence on both sides.”
But it took only a few minutes for the attorney to persuade Adams to grant a default judgment.
“Judge?” he said. “It is within your discretion to issue a default.”
After a brief chat on some housekeeping, she made up her mind.
“I’m doing this as a favor for you today,” she said.
The Chronicle reached Ramirez after the hearing at a Houston body shop where he was working. He said he was confounded that no consideration had been given for his good faith effort to make his scheduled court dates. When he called the clerk in November, it was not explained to him that the creditor’s attorney had sought back-to-back continuances.
Ramirez could have appealed his case to county court, but the 21-day deadline had been long past. He hadn’t had an attorney to lean on to inform him of that right.
“I don’t think this is what justice looks like,” he said. “Why do I have to be the loser when I was there ready to be present?”
Adams did not return requests for comment.
As the pandemic hit, Chastidy Gordwin, 35, faced a similar dilemma — though she got better results after she found a lawyer who could help her.
The Houston woman was dismissed from her job at a hospital because she had too many absences while caring for her grandmother, who was battling colon cancer. Without a job, she was unable to continue making payments on her car. So, the vehicle was repossessed. The debt was then sold to a debt buyer who sued her in a Harris County court in March 2020 for the amount that was owed — $22,000.
“I was so scared, not knowing what could happen,” Gordwin said. “I was thinking, ‘Are they going to try to put me in jail because I can’t pay it?’ I had no idea how the system went at all.”
She prevailed in the case, though. Her attorney negotiated a settlement with the debt buyer, who agreed to dismiss the case.
As part of the settlement, Gordwin had to agree to sign a document that she would not file a countersuit against the debt buyer.
How the process evolved
Many years ago, the debt collection process was more personal.
Sometimes, debtors could negotiate arrangements with their immediate creditors — the grocer, the doctor, the banker. They could make a phone call or two, then stop by to deliver the money in person. If a debt couldn’t be paid on time, the debtor could try to work something out.
That process was particularly encouraged in Texas, a state with a history of being one of the nation’s most stringent for debtor protections. The Texas Constitution prohibits debt collectors from seizing a long list of personal items, including family homes, cars, livestock and farming equipment that were necessary to make a living. Texas is also among only a handful of states that prohibits wage garnishment, except for paying child support.
So, for years, debt collectors were reluctant to tap the courts to collect on money owed, consumer advocates said.
Defendants often prevailed in court in a battle against a debt collector, and a significant number of cases were decided on a technical violation or a mistake by a creditor who sued the wrong person for debts exceeding the statute of limitations, which is capped at four years in Texas.
“The debt collectors were so bad,” said Ben Bingham, a retired consumer attorney in San Antonio.
Creditors also were deterred from filing more lawsuits because of a risk that one of their missteps could trigger a violation of federal law, said Brent Devere, a consumer and commercial law attorney in Austin.
The U.S. Fair Debt Collection Practices Act prohibits debt collectors from abusive debt collection practices, like threatening a lawsuit or harassing phone calls.
Debt collection firms became successful when they developed computerized systems that enabled them to churn out lawsuits in vast quantities. The sophisticated systems were aimed at securing as many favorable judgments as possible, without having to waste much time filing motions and making appearances in court, said Mark Gibson, justice of the Peace for Precinct 2 in Fort Bend County.
“They want to be able to crank out thousands of cases per day because the only way they see the revenue is by the volume,” Gibson said.
A decade ago, Houston creditor attorney Benjamin Sanchez was handling 25,000 active cases for a debt collection firm based in Seattle. Attorneys and staff for the collection firm completed the initial research on the credit card records for defendants, but those lawyers weren’t the ones who actually represented their creditor clients in front of judges. They were Texas attorneys who had barely reviewed the case, Sanchez said.
Some of his clients were debt buyers who purchase debt at a substantial discount. Debt buyers are able to purchase at much lower rates because they buy older debts that could not be recovered by original creditors and other debt collectors.
Debt buyers acquire hundreds of debt portfolios valued at tens of billions of dollars for much less. For example, from 1996 to 2006, PRA Group Inc. acquired 803 debt portfolios with a face value of $24 billion — yet it paid just $528 million, annual reports show.
Debt collection firms don’t expect to collect on all the debts, Sanchez said. But if they received judgments on just a small number, profits could soar. Relying on economies of scale to minimize their costs trying to collect, they pounded the court with thousands of lawsuits, he said.
The firms quickly got better at tracking documents and packaging defaulted debts, Sanchez said. The companies would bundle those judgments into packages and sell them. Sometimes there could be 1,000 debt judgments or more in a package.
By 2012, Sanchez had grown weary of the creditor’s side of the business.
“Eventually it got to the point where it was all rote,” he said. “It was no longer really practicing law. It was a machine of pushing out paper, putting out numbers.”
He would appear in court alongside other creditor attorneys who would have to rush from one courthouse to another. They had to appear in front of judges in Houston, San Antonio and McAllen — all on the same day.
Sanchez became so disillusioned he began serving consumers in 2013.
Speaking ‘legalese’
That’s also around the time when changes in state law began setting the stage for the recent explosion of debt suits.
For years, parties could not argue disputes for more than $5,000 in justice of the peace courts in Texas. In 2007, the cap was raised to $10,000. Then in 2019, lawmakers raised the amount even higher. Effective Sept. 1, 2020, parties were allowed to settle disputes for up to $20,000 in justice of the peace courts.
The cap raising was a way to keep the courts “relevant” for Texans, said Rick Hill, past president of the Justice of the Peace and Constables Association of Texas.
“Ten thousand dollars isn’t much in today’s world,” Hill said. “So, it was like, ‘Hey, if you want to keep Texans able to go to small claims court, if we raise the jurisdictional limit, it would allow them more access to justice.’ ”
In 2013, the Legislature passed a court overhaul bill that ordered the Supreme Court of Texas to adopt a process that would make debt collection disputes more accessible to the public.
Hecht, the court’s chief justice, said he and his peers saw a need to create a less intimidating atmosphere for defendants. Most defendants don’t have attorneys to advocate for them and are at a major disadvantage when they face off against creditors, who have sophisticated attorneys to represent them, he said.
So, the court cut out certain formalities, such as a requirement to launch into the legal discovery process, which requires extra time to permit each side to share with the other what evidence may be used against them.
“We were trying to make the process simpler, easy to understand and fair to both sides,” Hecht said. “The justice system doesn’t speak English. It speaks legalese. It has procedures and formalities that ordinary people don’t appreciate and don’t understand.”
Another reason the court supported the change was because debt cases are usually “routine, plain-vanilla,” he said. If a creditor has certain paperwork, like the original document that shows the defendant signed the credit card agreement, “there’s no point in arguing about it,” he said. It also should be as equally clear when the defendant didn’t open the credit card account, he said.
Early on, the changes improved the quality of paperwork filed by creditors to prove a debt is owed, said Lopez, the San Antonio justice of the peace.
Creditors were required to work much harder to win cases, said Baumann, the Houston creditor’s attorney.
“They scrutinize, and they do a whole lot more now to look at the business records and to say, ‘Yeah, it’s right,’ ” Baumann said.
But over time, consumer attorneys felt the changes chipped away at their ability to argue on behalf of defendants. For example, justices of the peace courts were not required to force creditors to submit proper documents, said Jerry Jarzombek, a consumer law attorney in Fort Worth.
“So, some courts require proof and some don’t,” Jarzombek said. “It’s like the wild, Wild West.”
As a result, decisions can be made solely on the basis of what the creditor says happened, said David Fernandez, a consumer attorney in Houston. That creates the possibility of creditors abusing the system because there’s no checks and balances to stop them.
“Ultimately, the effort for a fair result is often futile,” Fernandez said.
Before 2013, when she could press for a review of evidence under the legal discovery process, Caitlyn Wells, a Dallas consumer attorney, felt confident she could argue a settlement amount for her client that was sometimes as low as 10 to 20 percent of the claim. Debt collectors would agree to the lesser amounts because they didn’t have evidence to support their debt claims and wanted to avoid a trial, she said.
But discounts are now rare. Her best option often is to try to negotiate a settlement that could take the consumer many months to pay off.
“It’s just unfortunate because there’s not a lot I can do anymore,” Wells said.