July 18, 2011
MARION COUNTY, Ind.—For U.S. consumers with too many bills and not enough money, the end of the line is often a small-claims court like the one here in Pike Township.
Judge A. Douglas Stephens, who presides over all the township's small-claims cases, calls himself a "Renaissance redneck" and wears a small gun strapped to his ankle while on the bench. He says he has little patience for the "feeble protests" of people who try to dodge their financial obligations.
Shortly after his 2003 election, he recalls, two insurance executives in "bad suits" sat silently in the back of his courtroom to see if he would rule in favor of their company in a dispute involving damage from a car accident. He says he did, based on the facts.
These days, his calendar is packed with cases from many insurance companies—sometimes more than 200 a day—against residents who allegedly owe money for insurance premiums or car accidents. The defendants live not only in Pike Township but in townships all over Marion County. Judge Stephens says that American Family Mutual Insurance Co., based in Madison, Wis., files all its cases against county residents in his township because "they had a problem with another judge who was consistently too tough," whom he declines to name. Judge Stephens says he is "totally impartial." American Family declined to comment.
As companies and debt collectors try to collect on overdue bills that piled up during the financial crisis, the recession and their aftermath, they are borrowing a tactic from plaintiffs' lawyers: They shop around for the best places to bring their claims. Debt collectors aren't so much worried about whether a court will rule that the debtor owes the money—most cases are fairly clear-cut on that point—but about how aggressively collectors can pursue a debtor's assets.
Lawsuits to collect on bad debts have to be filed in the state where a debtor lives. In most cases, debt collectors don't get to choose the court in which the case will be heard. Unless it involves an especially large debt, it will be the small-claims court in the debtor's county, and there's no way for a debt collector to pick the judge.
There are exceptions, however, and they leave debt collectors room to maneuver. Virginia allows companies to file lawsuits in the county where a creditor is based, not where the borrower lives. In Cook County, Ill., collectors can choose between six municipal courts, and in Pulaski County, Ark., they can pick from eight small-claims courts.
Parts of Indiana are particularly unusual. Although the state requires suits to be filed in the county where the borrower lives, in Marion County and one other county, collectors can choose among township courts—each with a single judge. The courts handle all collection disputes involving up to $6,000.
"We lawyers call it forum-shopping," says Richard Gonon, a lawyer for Accounts Recovery Bureau Inc., a Reading, Pa., medical debt-collection firm that has filed cases in Marion County.
Companies such as Encore Capital Group Inc. and Portfolio Recovery Associates Inc. buy pools of bad loans at steep discounts, then try to collect on them. They begin by determining which states give them the greatest latitude to seize assets from borrowers who haven't paid up.
Brokers for distressed debt say investors like states such as Illinois, Maryland and New Jersey, where laws permit them to seize assets such as cars, pension payments and a portion of debtors' wages. Consequently, they try to buy loan pools from those states.
Brokers say investors shy away from buying bad debt from some other states. In Texas, married couples can shield from creditors as much as $1 million in residential real estate and $60,000 in personal property. California doesn't allow debt collectors to garnishee the bank accounts of delinquent borrowers.
Brokers say geography is the single biggest factor in how much debts fetch. Accommodating laws and judges often mean the difference between a profit and loss on debts pursued in court, says Mark Russell of Kaulkin Ginsberg, a Rockville, Md., adviser to debt collectors.
In states where laws are more favorable to debt collectors, they pay more for such debt. Unpaid consumer debt sells for about seven cents on the dollar in Indiana, compared with two cents in Texas, according to Lou DiPalma, a debt broker in Harrison, N.Y. Such debt also fetches relatively high prices in Illinois, Minnesota, Ohio and Virginia, he says.
Debt collectors regard Indiana as friendly territory. Companies can file small-claims suits by mail rather than sending lawyers to file them in person. If a debt collector wins in court, nearly all of a creditor's assets can be pursued for payment, including real estate, pension payments and cars, which are off-limits in many other states.
Marion County, where Indianapolis is located, is the state's most populous county. It is carved into nine townships, each with its own court—a vestige of a time in which every Indiana resident was supposed to be able to reach a courthouse on horseback in one day.
Eighty percent of debt-collection cases against Marion County residents involved less than $6,000 in 2009, the latest year for which figures are available, so they were handled by township courts. State law allows debt collectors to file the suits in any of the nine courts.
Jeff Bennett, who oversees the Warren Township court's budget and staff, says township courts depend on filing fees of $81 per case to fund a chunk of their operations. He says that creates a "perverse incentive" for judges and their staffs to be "accommodating" to collectors.
Pike Township's Judge Stephens says debt collectors often choose the court where they expect to recoup the most money. His court is the second-busiest in Marion County, with 8,200 cases filed last year and 2,731 filed through April of this year, according to court officials. "I'm pretty much the insurance-company judge," he says, noting that suits filed by insurance companies account for about 20% of his caseload.
Judge Stephens allows lawyers for companies trying to collect debts to use cubicles next to his courtrooms to hash out payment plans with debtors in lieu of bringing their cases before the court. The judge doesn't supervise the meetings—the law doesn't require him to do so—and nearly all of the borrowers come to court without lawyers of their own.
Such settlement meetings occur in several other township courts as well. Debtors sometimes agree to make debt payments using income that is protected from seizure by state law, such as unemployment or disability payments, according to Garland Graves, the judge in Warren Township, who says he doesn't allow unsupervised settlement meetings. Many defendants make concessions without knowing their rights, he says.
Judge Stephens responds: "I am under no obligation to tell someone how to defend themselves…If someone owes a debt, which they generally do, how much more advantageous is it for a defendant to get in front of a judge?" He adds that debtors can exercise that right if they want. "Defendants don't frequently make payments from these protected [income] sources," he says. "Just because they don't ask to go in front of a judge doesn't mean that they are being taken advantage of."
The court in Decatur Township also arranges unsupervised meetings. When defendants arrive, they often are told to sit in the courtroom until their names are called. They are called one at a time to meet with debt-collection lawyers, according to court employees. No judge is present.
Jeff Cook, an unemployed plumber, had a closed-door meeting earlier this year with a lawyer for Med Shield Inc., which collects debts for some of Indiana's largest nonprofit hospitals and outpatient clinics. He says he agreed to allow Med Shield to tap his unemployment benefits to cover a $651 emergency-room bill. He found out later that debt collectors have no legal right in Indiana to seize unemployment checks to satisfy a verdict in a lawsuit.
Decatur Township Judge William L. Fisher Jr. didn't return calls seeking comment. Med Shield declined to comment.
Decatur Township has become the preferred courthouse for lawyers who collect soured debt on behalf of medical providers, according to Pam Ricker, who has managed the court's operations for more than 25 years. The township has no hospitals.
Ms. Ricker says a lack of public transportation discourages many defendants from showing up in court, resulting in automatic wins for debt collectors.
"We certainly have our loyal attorneys," said Ms. Ricker. The court provides lawyers with coffee in a break room and a fax machine for their clerical needs.
Of the 106 Med Shield cases scheduled to be handled by the court one day in February, just three involved defendants who lived in the township, according to an analysis of court records by The Wall Street Journal.
Some township judges are uncomfortable with appearing too accommodating to debt collectors. Last year, Judge Steven Poore of Washington Township barred lawyers from meeting privately with defendants. He says he was worried that the court looked like "an arm of the debt collectors." He now reviews all debt-collection settlements. The number of debt-collection suits filed in Washington Township is down sharply, he says.
Mr. Gonon, the medical debt-collection lawyer, says he stopped filing lawsuits in Washington Township. He says he will file future cases in a township where the judge is less "debtor-friendly" and will let him meet one-on-one with defendants. "Hard-liners" like Judge Poore, he says, "hurt business because it's harder to collect money on each account."
Judge Poore says the courts aren't intended to function as "business generators for debt collectors," noting that his changes in procedure help ensure that everyone gets a fair hearing.
Maxine King, the small-claims-court judge in Washington Township until she lost her re-election bid in January, says she also banned closed-door meetings between defendants and lawyers. She says she did so after learning that debt-collection firms were discouraging debtors from bringing their cases before her. "It was a clear obstruction of the justice that should be given to each defendant," she says. "Ideally, debt-collection firms wouldn't have such latitude and would have to file where the debtor lives, not where they like the judge most."
In Center Township, court constables hand out questionnaires outside the small courtroom's entrance. The forms ask defendants for their telephone numbers, Social Security numbers and employer's addresses. The defendants hand over the forms to collection lawyers when they are called to settlement meetings, which aren't supervised by the judge. The questionnaires are prepared by an Indiana law firm that sues borrowers on behalf of credit-card issuers, according to township Judge Michelle Smith Scott.
Crystal Dupree, a 32-year-old office manager facing a lawsuit over an alleged debt on a store-issued credit card, says she wrote down her bank-account information and cellphone number because she thought the form was an official court document. "It's really deceptive, and I never would have given them that information," she says. She disputes that she owes money on the credit card.
Lawyers at the law firm that prepared the questionnaire declined to comment. Mark Anthony Duncan, the Center Township constable in charge of serving defendants with court documents, says defendants aren't forced to fill out the questionnaires, adding that the forms inform defendants they are "from a debt-collector."
Judge Scott, when contacted by the Journal, said she would instruct constables to stop handing out the questionnaires so as to prevent "any wrong perception" that the forms are issued by the court. "I can't deny that some collectors shop around the township courts to find the one where they will fare best," she said. "I want to ensure my court is fair."
Shortly after Judge Graves took over the Warren Township court in January, he says, calls poured in from debt-collection lawyers trying to figure out where he stood. Judge Graves says his predecessor on the bench was unpopular with debt collectors because he hired an administrator to review payment agreements between defendants and collection firms.
Mr. Bennett, who oversees the court's budget and staff, says debt-collection lawyers threatened to take their cases and filing fees elsewhere if Judge Graves didn't back down.
Judge Graves says some company lawyers asked court officials to fax them hundreds of pages of documents on previous judgments, which the judge took to be a test of his willingness to accommodate debt collectors.
He refused. "I don't want to be a pushover," he says. "If that means losing business, well, I guess that's what we're going to do."
(note: full text article available by google searching title then clicking through from google, as with all WSJ material).
MARION COUNTY, Ind.—For U.S. consumers with too many bills and not enough money, the end of the line is often a small-claims court like the one here in Pike Township.
Judge A. Douglas Stephens, who presides over all the township's small-claims cases, calls himself a "Renaissance redneck" and wears a small gun strapped to his ankle while on the bench. He says he has little patience for the "feeble protests" of people who try to dodge their financial obligations.
Shortly after his 2003 election, he recalls, two insurance executives in "bad suits" sat silently in the back of his courtroom to see if he would rule in favor of their company in a dispute involving damage from a car accident. He says he did, based on the facts.
These days, his calendar is packed with cases from many insurance companies—sometimes more than 200 a day—against residents who allegedly owe money for insurance premiums or car accidents. The defendants live not only in Pike Township but in townships all over Marion County. Judge Stephens says that American Family Mutual Insurance Co., based in Madison, Wis., files all its cases against county residents in his township because "they had a problem with another judge who was consistently too tough," whom he declines to name. Judge Stephens says he is "totally impartial." American Family declined to comment.
As companies and debt collectors try to collect on overdue bills that piled up during the financial crisis, the recession and their aftermath, they are borrowing a tactic from plaintiffs' lawyers: They shop around for the best places to bring their claims. Debt collectors aren't so much worried about whether a court will rule that the debtor owes the money—most cases are fairly clear-cut on that point—but about how aggressively collectors can pursue a debtor's assets.
Lawsuits to collect on bad debts have to be filed in the state where a debtor lives. In most cases, debt collectors don't get to choose the court in which the case will be heard. Unless it involves an especially large debt, it will be the small-claims court in the debtor's county, and there's no way for a debt collector to pick the judge.
There are exceptions, however, and they leave debt collectors room to maneuver. Virginia allows companies to file lawsuits in the county where a creditor is based, not where the borrower lives. In Cook County, Ill., collectors can choose between six municipal courts, and in Pulaski County, Ark., they can pick from eight small-claims courts.
Parts of Indiana are particularly unusual. Although the state requires suits to be filed in the county where the borrower lives, in Marion County and one other county, collectors can choose among township courts—each with a single judge. The courts handle all collection disputes involving up to $6,000.
"We lawyers call it forum-shopping," says Richard Gonon, a lawyer for Accounts Recovery Bureau Inc., a Reading, Pa., medical debt-collection firm that has filed cases in Marion County.
Companies such as Encore Capital Group Inc. and Portfolio Recovery Associates Inc. buy pools of bad loans at steep discounts, then try to collect on them. They begin by determining which states give them the greatest latitude to seize assets from borrowers who haven't paid up.
Brokers for distressed debt say investors like states such as Illinois, Maryland and New Jersey, where laws permit them to seize assets such as cars, pension payments and a portion of debtors' wages. Consequently, they try to buy loan pools from those states.
Brokers say investors shy away from buying bad debt from some other states. In Texas, married couples can shield from creditors as much as $1 million in residential real estate and $60,000 in personal property. California doesn't allow debt collectors to garnishee the bank accounts of delinquent borrowers.
Brokers say geography is the single biggest factor in how much debts fetch. Accommodating laws and judges often mean the difference between a profit and loss on debts pursued in court, says Mark Russell of Kaulkin Ginsberg, a Rockville, Md., adviser to debt collectors.
In states where laws are more favorable to debt collectors, they pay more for such debt. Unpaid consumer debt sells for about seven cents on the dollar in Indiana, compared with two cents in Texas, according to Lou DiPalma, a debt broker in Harrison, N.Y. Such debt also fetches relatively high prices in Illinois, Minnesota, Ohio and Virginia, he says.
Debt collectors regard Indiana as friendly territory. Companies can file small-claims suits by mail rather than sending lawyers to file them in person. If a debt collector wins in court, nearly all of a creditor's assets can be pursued for payment, including real estate, pension payments and cars, which are off-limits in many other states.
Marion County, where Indianapolis is located, is the state's most populous county. It is carved into nine townships, each with its own court—a vestige of a time in which every Indiana resident was supposed to be able to reach a courthouse on horseback in one day.
Eighty percent of debt-collection cases against Marion County residents involved less than $6,000 in 2009, the latest year for which figures are available, so they were handled by township courts. State law allows debt collectors to file the suits in any of the nine courts.
Jeff Bennett, who oversees the Warren Township court's budget and staff, says township courts depend on filing fees of $81 per case to fund a chunk of their operations. He says that creates a "perverse incentive" for judges and their staffs to be "accommodating" to collectors.
Pike Township's Judge Stephens says debt collectors often choose the court where they expect to recoup the most money. His court is the second-busiest in Marion County, with 8,200 cases filed last year and 2,731 filed through April of this year, according to court officials. "I'm pretty much the insurance-company judge," he says, noting that suits filed by insurance companies account for about 20% of his caseload.
Judge Stephens allows lawyers for companies trying to collect debts to use cubicles next to his courtrooms to hash out payment plans with debtors in lieu of bringing their cases before the court. The judge doesn't supervise the meetings—the law doesn't require him to do so—and nearly all of the borrowers come to court without lawyers of their own.
Such settlement meetings occur in several other township courts as well. Debtors sometimes agree to make debt payments using income that is protected from seizure by state law, such as unemployment or disability payments, according to Garland Graves, the judge in Warren Township, who says he doesn't allow unsupervised settlement meetings. Many defendants make concessions without knowing their rights, he says.
Judge Stephens responds: "I am under no obligation to tell someone how to defend themselves…If someone owes a debt, which they generally do, how much more advantageous is it for a defendant to get in front of a judge?" He adds that debtors can exercise that right if they want. "Defendants don't frequently make payments from these protected [income] sources," he says. "Just because they don't ask to go in front of a judge doesn't mean that they are being taken advantage of."
The court in Decatur Township also arranges unsupervised meetings. When defendants arrive, they often are told to sit in the courtroom until their names are called. They are called one at a time to meet with debt-collection lawyers, according to court employees. No judge is present.
Jeff Cook, an unemployed plumber, had a closed-door meeting earlier this year with a lawyer for Med Shield Inc., which collects debts for some of Indiana's largest nonprofit hospitals and outpatient clinics. He says he agreed to allow Med Shield to tap his unemployment benefits to cover a $651 emergency-room bill. He found out later that debt collectors have no legal right in Indiana to seize unemployment checks to satisfy a verdict in a lawsuit.
Decatur Township Judge William L. Fisher Jr. didn't return calls seeking comment. Med Shield declined to comment.
Decatur Township has become the preferred courthouse for lawyers who collect soured debt on behalf of medical providers, according to Pam Ricker, who has managed the court's operations for more than 25 years. The township has no hospitals.
Ms. Ricker says a lack of public transportation discourages many defendants from showing up in court, resulting in automatic wins for debt collectors.
"We certainly have our loyal attorneys," said Ms. Ricker. The court provides lawyers with coffee in a break room and a fax machine for their clerical needs.
Of the 106 Med Shield cases scheduled to be handled by the court one day in February, just three involved defendants who lived in the township, according to an analysis of court records by The Wall Street Journal.
Some township judges are uncomfortable with appearing too accommodating to debt collectors. Last year, Judge Steven Poore of Washington Township barred lawyers from meeting privately with defendants. He says he was worried that the court looked like "an arm of the debt collectors." He now reviews all debt-collection settlements. The number of debt-collection suits filed in Washington Township is down sharply, he says.
Mr. Gonon, the medical debt-collection lawyer, says he stopped filing lawsuits in Washington Township. He says he will file future cases in a township where the judge is less "debtor-friendly" and will let him meet one-on-one with defendants. "Hard-liners" like Judge Poore, he says, "hurt business because it's harder to collect money on each account."
Judge Poore says the courts aren't intended to function as "business generators for debt collectors," noting that his changes in procedure help ensure that everyone gets a fair hearing.
Maxine King, the small-claims-court judge in Washington Township until she lost her re-election bid in January, says she also banned closed-door meetings between defendants and lawyers. She says she did so after learning that debt-collection firms were discouraging debtors from bringing their cases before her. "It was a clear obstruction of the justice that should be given to each defendant," she says. "Ideally, debt-collection firms wouldn't have such latitude and would have to file where the debtor lives, not where they like the judge most."
In Center Township, court constables hand out questionnaires outside the small courtroom's entrance. The forms ask defendants for their telephone numbers, Social Security numbers and employer's addresses. The defendants hand over the forms to collection lawyers when they are called to settlement meetings, which aren't supervised by the judge. The questionnaires are prepared by an Indiana law firm that sues borrowers on behalf of credit-card issuers, according to township Judge Michelle Smith Scott.
Crystal Dupree, a 32-year-old office manager facing a lawsuit over an alleged debt on a store-issued credit card, says she wrote down her bank-account information and cellphone number because she thought the form was an official court document. "It's really deceptive, and I never would have given them that information," she says. She disputes that she owes money on the credit card.
Lawyers at the law firm that prepared the questionnaire declined to comment. Mark Anthony Duncan, the Center Township constable in charge of serving defendants with court documents, says defendants aren't forced to fill out the questionnaires, adding that the forms inform defendants they are "from a debt-collector."
Judge Scott, when contacted by the Journal, said she would instruct constables to stop handing out the questionnaires so as to prevent "any wrong perception" that the forms are issued by the court. "I can't deny that some collectors shop around the township courts to find the one where they will fare best," she said. "I want to ensure my court is fair."
Shortly after Judge Graves took over the Warren Township court in January, he says, calls poured in from debt-collection lawyers trying to figure out where he stood. Judge Graves says his predecessor on the bench was unpopular with debt collectors because he hired an administrator to review payment agreements between defendants and collection firms.
Mr. Bennett, who oversees the court's budget and staff, says debt-collection lawyers threatened to take their cases and filing fees elsewhere if Judge Graves didn't back down.
Judge Graves says some company lawyers asked court officials to fax them hundreds of pages of documents on previous judgments, which the judge took to be a test of his willingness to accommodate debt collectors.
He refused. "I don't want to be a pushover," he says. "If that means losing business, well, I guess that's what we're going to do."
(note: full text article available by google searching title then clicking through from google, as with all WSJ material).
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