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Law360 (May 31, 2020, 8:02 PM EDT )
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| Ashlee Highland |
The Pew Charitable Trust's recent release of a report[1] on the state of debt courts demonstrates the ways in which corporate debt collectors are at an unfair advantage in court.
According to the report, four states — North Carolina, Pennsylvania, South Carolina and Texas — generally prohibit the garnishment of wages to pay off consumer debts. In contrast, Alabama, Arkansas, Georgia, Idaho, Kansas, Kentucky, Louisiana, Maryland, Michigan, Mississippi, Montana, Ohio, Utah and Wyoming offer no protections beyond the "federal minimum," which refers to a basic understanding that third-party collection agencies are prohibited from harassing, threatening and inappropriately contacting someone who owes money.
Given the advantage of debt collectors in our courts, the pandemic has added an extra layer of economic turmoil for countless more people who will face consumer debt collection efforts as a result of rising expenses and falling incomes.
With the Illinois courts closed due to the COVID-19 pandemic, there must be a reexamination of the great vulnerability people in crushing debt face. They are unable to pay for basic needs, rent checks bounce, cards are declined at the grocery store, and other regular bills cannot be paid. Gov. J.B. Pritzker and the Illinois Supreme Court have responded with limited protective measures for debtors during this unprecedented crisis, but there is more to the story.
In Illinois, under normal circumstances, the debtor is allowed to "unfreeze" their account by asserting a "wildcard exemption" in court of up to $4,000. Usually, it can take several weeks before there is a court date available on the bank freeze. Many debtors are unaware of how to exercise their rights.
According to the Pew report, debt lawsuits frequently end in default judgment, or without consideration of the facts, indicating that many people do not respond when sued for a debt. Most people who are dealing with a debt lawsuit in the U.S. have no representation, and we see that mirrored in our clients at CARPLS Legal Aid.
Even when a client can file an emergency motion, for many it means missing two days of work — one day to prepare and file the motion, and one to have it heard. And consumers who find themselves paying high interest rates on default judgments can face an even deeper cycle of debt.[2]
During the pandemic, Pritzker issued Executive Order 2020-25 that temporarily suspends some wage garnishments. This was a good first step, but the executive order did not address outstanding bank freezes set before the pandemic or anticipate the impact of the courts being closed.
Take the example of a single mother I counseled recently. Her bank account was frozen along with her tax refund at the end of February. In late March, she contacted us after she lost her job due to COVID-19 and was worried that her stimulus check would also be frozen when it was electronically deposited. Until the courts could reopen, the suburban courthouse where her hearing was to take place was on indefinite hold.
Despite the collection company's willingness to dismiss the bank citation, the bank could not release the funds without a court order. My client accessed her funds after two months when one of our referral partners, Legal Aid Chicago, contacted the creditor and the bank to get the funds released. She is just one of many examples of bank freezes and was lucky to have the money released, eventually.
Illinois has been working to address the disparity in consumer laws regarding debtors over the last several years. The state passed legislation in 2019 that cuts the interest rate in half on consumer judgments under $25,000. Then, in response to the pandemic, a coalition of consumer legal aid organizations, private attorneys and the creditor's bar appealed to the Illinois Supreme Court regarding the injustice of allowing bank freezes to continue while appeals in court could not.
In response, the Illinois Supreme Court issued an order on April 24, limiting freezes on personal bank accounts until the courts reopen. Specifically, it automatically dismissed the existing bank freezes if the account had under $4,000, and would release the funds with a continued hearing if it had more than $4,000. We were thrilled to make progress, but this does not solve the underlying issue that debtors need immediate access to their funds to pay for their necessities, rent, utilities and medical care.
When a judgment includes a bank freeze, debtors must be allowed to access at least $4,000 at all times until a hearing can be set. The rights of debtors to determine which property is protected by these exemptions must also be strengthened through statute. This change would go far to prevent the financial chaos and extreme hardship that often accompany a bank freeze.
We also need to do a better job reporting this data. The Pew report indicates that Idaho, Illinois, Mississippi, New Mexico and Oklahoma did not report civil court data in 2017, and this needs to change.
The loss of income threatens to undermine Illinoisans' financial and housing security and overall stability. It is imperative to protect stimulus checks and income at this crucial time. We have made good headway, and we have more to do. And, what is happening in Illinois is representative of a greater national problem of an increasing level of consumer debt without proper representation in courts.
Ashlee Highland is a supervising attorney at CARPLS Legal Aid.
Disclosure: Highland helped draft an initial proposal to the Illinois Supreme Court that ultimately led to the April 24 order discussed here.
"Perspectives" is a regular feature written by guest authors from the access to justice field. To pitch article ideas, email expertanalysis@law360.com.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
[1] https://www.pewtrusts.org/en/research-and-analysis/reports/2020/05/how-debt-collectors-are-transforming-the-business-of-state-courts.
[2] Pew report, p. 17.
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