The rising cost of living, the end of emergency aid, and the growing reliance on credit cards have created the perfect storm for a troubling phenomenon: the surge of debt collection lawsuits in the United States. According to a recent analysis, what appeared to have declined during the pandemic returned with force in 2023 and 2024, surpassing 2020 levels in some states.
These actions, usually filed by collection companies or large debt buyers, affect millions of Americans many of whom do not even show up in court or file a defense. The result is a growing number of default judgments, paving the way for severe measures such as wage garnishment and bank account freezes.
Why are lawsuits increasing?
During the pandemic, government stimulus checks and enhanced unemployment benefits helped many families keep up with their bills. In addition, courts themselves operated on a limited basis, reducing the ability of companies to file lawsuits.
With the end of those measures, reality has set back in. Inflation eroded household budgets, credit cards became a “financial crutch,” and overdue balances multiplied. According to Pew Charitable Trusts, about one-quarter of American adults have debts in collection.
Another new factor is automation. Recent reports from the National Center for State Courts suggest that filing systems powered by artificial intelligence may be making it easier to launch lawsuits in bulk. In states like Minnesota and Texas, debt buyers have filed record numbers of lawsuits in the past two years.
Who is filing the lawsuits?
The main players in this wave are so-called debt buyers. Companies like LVNV Funding purchase entire portfolios of delinquent debts for pennies on the dollar and then seek to recover the full amount through lawsuits.
Between 2019 and 2024, LVNV more than tripled its filings, far surpassing any other collector, according to data from consulting firm January Advisors. For consumers, this model creates an additional problem: debts may have changed hands so many times that borrowers do not even recognize the company suing them.
“There is a lot of confusion about these lawsuits,” explains Frederick Wherry, professor of sociology at Princeton and director of the Debt Collection Lab. “People don’t know who owns the debt, and they end up giving up before even trying to fight.”
The consequences of not responding
Failure to respond can be costly. It is estimated that 70% of debt collection lawsuits end in default judgments that is, when the defendant does not file a defense. In these cases, collectors can act quickly: requesting wage garnishment, freezing bank accounts, or even summoning the debtor to hearings.
In states like Virginia, failing to attend such hearings can lead to the issuance of arrest warrants, something experts consider a serious distortion of what is essentially a financial problem.
What to do if you are sued?
Attorneys and consumer advocacy groups are unanimous: do not ignore a court notice. Each letter contains deadlines and crucial instructions, and missing them is the same as handing the case to the creditor.
Free or low-cost legal aid programs are available in many states. Additionally, local courts often provide simplified forms so that defendants can file responses even without a lawyer.
“If you don’t understand the document, ask for help,” warns April Kuehnhoff, attorney at the National Consumer Law Center.
A story that illustrates the problem
Carlos Banuls, a civil engineer from Virginia, accumulated more than $16,000 in debt during the pandemic when he was unemployed and had to care for his sick father. In August 2024, he was sued by LVNV Funding for just under $3,000.
When he appeared in court, he discovered that the company had no documents proving ownership of the debt. The case was postponed and later dismissed. Banuls is now suing LVNV, alleging violations of the Fair Debt Collection Practices Act.
“I was perplexed,” he said. “A lot of people lose just because they don’t show up in court. I did, and that made all the difference.”
How can the system be improved?
Pew experts advocate for simple but impactful reforms:
- Greater transparency about who the original creditor is.
- Delivery of notices with digital proof, similar to delivery apps.
- Stronger evidentiary requirements before a lawsuit is accepted.
These measures could reduce cases of questionable debts and prevent consumers from losing lawsuits purely due to lack of information.
Conclusion
The rise in debt collection lawsuits is a direct reflection of the financial fragility of millions of Americans and the growing aggressiveness of collection companies.
While creditors have the right to seek repayment, the imbalance in the judicial system leaves consumers at a disadvantage. With rising costs and greater reliance on credit, the trend is that more families will find themselves facing a courtroom.
The challenge for authorities, courts, and society will be to make this process fairer, more transparent, and more accessible, so that debt does not automatically mean defeat.
