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Debtors’ court, part 2

Also not good.

One day last September, while trying to pay for groceries, Leslie Alvarez got the shock of her life. All the money in her bank account had disappeared.

The Houston single mother called her bank. An employee told Alvarez that her accounts had been placed on a legal hold. A person she did not know had been authorized to remove money from her accounts.

“I had to tell my kids they had to wait awhile so I could go make money to get what they needed,” she said.

Alvarez was forced to pay up on a $1,500 cash loan as part of a debt judgment issued against her in a Harris County civil court.

Texas doesn’t allow people’s wages to be garnished to pay off debts unless it is to collect child support. By law, however, courts can designate special officers, known as turnover receivers, to force payments by freezing or seizing bank accounts. The legal process became popular in Harris County but has been used all over the state more commonly in recent years, officials say.

“This is the only real way a debt collector can hurt you,” said Craig Noack, a creditor’s attorney in San Antonio who also serves as a court-appointed receiver in Texas.

At issue, though, is whether courts have adequate oversight to ensure a fair process.

Each year, tens of thousands of Texans are subject to a bank seizure as a result of a default judgment that was declared against them because they didn’t show up in court to fight a lawsuit over a debt.

But here’s the dilemma: Most debtors don’t know that they can have their bank accounts cleaned when a debt collector wins a default judgment against them unless they claim exemptions for certain sources of funds, such as child support, Social Security, unemployment benefits and retirement funds. Alvarez had child support payments in her accounts when they were seized.

Just this month, the Supreme Court of Texas took its first steps to establish parameters that would ensure that debtors are informed of their rights to claim exemptions. Under new rules, which took effect May 1, debt collectors must provide at least 17 days for debtors to inform courts that they have funds or property that is exempt from seizure.

“The purpose of these rules and forms is to try to help even out a little bit the playing field so that the debtors get more information,” Texas Supreme Court Chief Justice Nathan Hecht said.

[…]

In the Houston region and other large Texas counties, default judgments rose by 86 percent between 2012 and last year, data show.

“As long as people don’t respond, debt collectors can get a default judgment,” said Ann Baddour, director of the fair financial services project at Texas Appleseed, a consumer advocacy group in Austin. “There’s just this motivation to move forward and sue.”

Even the Texas Creditors Bar Association, a statewide organization of attorneys that engages in debt collections, says it wants to make sure debt collectors don’t take money that is protected by law.

They support the notifications, said Noack, who represented the Texas Creditors Bar Association in discussions before the Supreme Court Advisory Committee about the new rules.

“You’re not going to find a creditor’s attorney out there who wants to take somebody’s Social Security,” he said.

Yet, among the many concerns consumer advocates say still must be addressed is the lack of oversight in Texas courts regarding the appointment of the court officers or turnover receivers.

Texas courts have no way to prevent abuses — or even mistakes — because judges are not required to track their appointments or keep periodic reports on the status of seizures, Houston consumer attorney Benjamin Sanchez said.

“You have these receivers who are doing things but not necessarily reporting back to the court,” Sanchez said.

See here for the previous entry. I hope we can all agree that no one should have their bank account drained as the result of a default judgment where they hadn’t known they needed to appear in court. There needs to be a lot more oversight here, and that’s first a job for the Legislature and then a job for the court system. One possible aspect to a solution might be a public defender system for civil litigation, modeled on the same system for criminal defendants. This is an idea I’ve seen advocated by others, and it makes sense on the principle that everyone should have the right to a lawyer to represent them in court. I’m no expert, I’m just throwing out an idea here. Whatever the case, there’s a real need for reform.

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