A daunting process for debtors

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Many Minnesotans facing debt-collection lawsuits confront a confusing and burdensome court process, according to a recent report by the Minnesota State Bar Association’s Access to Justice Committee, which has recommended changes to ease procedures.

“Our work for the past year has been to dive deep into our court data to find out who’s being sued, for how much, and identify pain points in the system and address them.” MBSA Access to Justice Director Katy Drahos said. “[T]here are many barriers to participation for those who owe a debt, who are almost always unrepresented. What we have now is a roadmap to better serve all Minnesotans.”

The Minnesota Judiciary, MSBA, and State Support Services began examining debt-collection lawsuits in Minnesota in October 2022. With data analysis support from January Advisors and The Pew Charitable Trusts, these groups began scrutinizing consumer debt cases filed in Minnesota between 2011 and 2021. In all, the group analyzed nearly 700,000 consumer debt cases, the largest data sample of this type of case ever compiled in Minnesota.

Consumer debt lawsuits comprise over half of all cases in civil court in Minnesota, according to the Access to Justice Committee. According to the Minnesota Attorney General’s Office, medical debt accounts for 17% of debt collection cases. Yet, as the study notes, the processes and procedures in Minnesota were not designed to make the process as equitable as possible. This has resulted in struggles for many Minnesota consumers who wish to resolve their debts but are unsure about how to do so.

There were several key findings from this analysis. While Minnesotans are less likely to be in debt than most other places in the United States, plaintiffs were much more litigious. Civil court cases resulted from one out of every eight debts in collections.

The vast majority of the consumers are not represented by a lawyer in these legal matters. They are represented in only 3% of district court cases and 0.2% of conciliation cases. Comparatively, creditors are represented in 98% of debt cases in district court and 69% in conciliation court. Interestingly, of those creditors who have legal representation, 60% of them receive representation from just five specialized law firms.

Many Minnesotans are unrepresented in these matters because they make too much money to qualify for legal aid but not enough money to hire an attorney. Around 82% of consumer debt cases are filed against people who are above the income threshold for legal aid. Between 2019 and 2021, Minnesota legal aid served just 3,000 debt-related cases out of 178,000 that were filed in Minnesota courts during that time period.

Plaintiffs can either file their cases in district court, or, if less than $4,000, file in conciliation court. That two-venue system, the group found, led not only to confusion but also to different outcomes. When the case was filed in district court, the group determined that 82% of those lawsuits resulted in an automatic win for plaintiff. Consequently, courts can garnish wages and bank accounts.

Individuals who are racial minorities or have lower incomes also are disproportionately impacted. Debt claims are filed at more than twice the rate against Black and Latinx Minnesotans than non-Hispanic white Minnesotans. Those living in neighborhoods with a household income of $50,000 or less per year are 50% more likely to have debt claims filed against them than people living in neighborhoods with a median household of over $75,000 per year.

After reviewing this information, the MSBA Access to Justice Committee consulted with various stakeholders around the state. Listening to concerns of both consumer debtors and creditors, the group issued recommendations. These recommendations are offered with the intent that both sides are equally heard, meaning that Minnesotan consumers — who are often unrepresented — have the ability to meaningfully participate in the court process.

The committee’s recommendations included creating and improving resources that better aid self-represented litigants in participating in their case. This includes updating forms by using plain language and making those forms available in several places that a self-represented litigant can find them.

Another recommendation is to expand services for lower- and moderate-income people struggling with debt. They say that the state can do this by expanding lower-income services by adding resources for up to at least 200% of poverty guidelines, and by increasing bar associations’ unbundled services for people above legal aid income guidelines.

Another solution that the committee offered was to streamline and standardize the process. This could include requiring all plaintiffs to file consumer debt collections involving amounts under $4,000 in conciliation court. It would also require documentation of debt to be provided to defendants when they are served, not, as it stands now, when seeking a default judgment.

“The working group’s recommendations for our justice system will help self-represented consumers engage in their cases and make the justice system more accessible to all,” said Dori Rapaport, chair of Access to Justice Committee Workgroup and executive director of Legal Aid Service of Northeastern Minnesota. “We are not saying debts should not be paid, but that the practices in the justice system could improve to ensure fairness and support early resolution of these cases.”