Debt Collection Lawsuits in Shelby County, TN

The ability for businesses to use the courts to collect debts helps
ensure they remain financially solvent. Ensuring that people in debt
meet their financial obligations can safeguard access to and
mitigate increases in the costs of credit (or other services) for
others. (1) However, the over- or misuse of lawsuits involves
trade-offs for both courts and defendants. In this report, we
explore consumer debt collection lawsuits in Shelby County,
Tennessee. Using Shelby County civil court data for January 2016
through March 2023, this study explores how creditors use Memphis
courts to collect consumer debt, the kinds of debts most likely to
end up in court, and who is most affected. A similar review focused
on Davidson County is available
here.

Key Findings

At least 158,600 debt collection cases were filed in Shelby
County civil courts between January 2016 and March 2023
(Figure 1)
— including about 18,100 in 2022. Between 2016 and
2018, the number of cases steadily climbed (Figure 2) — peaking at almost 28,000 yearly cases. Filings declined
precipitously during the pandemic as courts closed or restricted
access to courtrooms. (2) As of 2022, the number of debt collection
filings was about 35% lower than the peak in 2018. (3)

Debt Collector Types

Debt buyers and 3rd-party collectors filed the most debt
collection lawsuits in Shelby County between January 2016 and
March 2023
(Figure 1). Over the entire period, they were
followed by medical providers, who filed 19% of all suits. By 2022,
medical providers all but stopped filing debt collection lawsuits
— driving up the shares filed by all other collector types. (3) (See
Collector Types text box for additional information
on each type of collector.)

Compared to Davidson County — the only other one for which we
have data — Shelby County debt collection filing rates are similar
but distributed quite differently across collector types (Figures
3 and 4). While high-interest lenders accounted for 38% of all debt
collection cases in Davidson — or about 63 cases per 1,000
residents, they made up only 12% — or 21 cases per 1,000 residents —
in Shelby County. Debt buyers/collectors, medical providers, and
auto lenders made up larger shares with higher case filing rates in
Shelby County than in Davidson. (3) (4)

Medical and high-interest lender debt collection suits in Shelby
County were still below pre-pandemic levels in 2022, while other
types remained about the same (Figure 5). All types of cases declined
significantly at the onset of the pandemic (Figure 6). Those by debt buyers/3rd-party collectors jumped back up to
pre-pandemic levels within months. Others more steadily climbed back
up, while medical debt suits remained low — consistent with other
studies that show a national decline in medical debt during the
pandemic. (5)

Top Plaintiffs

Over half of all debt collection lawsuits in Shelby County were
filed by fewer than 10 companies (Figure 7). Between January 2016 and March 2023,
three debt buyers/3rd party collectors — LVNV Funding, Midland
Credit Management, and Portfolio Recovery Associates — filed about
one-quarter of all debt collection cases. In 2022, LVNV remained the
top filer, but auto loan lender Credit Acceptance became the second
highest filer — making up 10% of all cases. (3)

A few plaintiffs also account for most lawsuits within almost
every debt type (Figures 8 and 9). For example,
between 2016 and March 2023, the top three plaintiffs in each
category brought 69% of all high-interest lender cases, 62% of debt
buyer cases, 61% of auto lender cases, 53% of medical debt cases,
and 49% of bank and credit card suits. All debt types remained
relatively similarly concentrated among a few specific plaintiffs in
2022. (3)

The number of lawsuits filed by top plaintiffs has varied
significantly over time
(Figure 10). For example, both Southeastern
Emergency Physicians and Methodist LeBonheur Hospital stopped filing
lawsuits altogether in 2020. Advance Financial rapidly increased the
number of lawsuits they filed between 2016 and 2020, but that number
has come back down since.

Representation

An attorney almost always represents plaintiffs in Shelby County
debt collection lawsuits, while defendants rarely have legal
representation
(Figure 11). Across all collector types, plaintiffs
had representation about 99% of the time and defendants about 0.1%.
These rates varied little across collector types. (3)

Garnishment

Settlements come in many ways — including garnishment, in which
debts are deducted straight from a defendant’s paycheck or bank
account. For example, cases can be dismissed, delayed, or settled between
the parties without any court action. If a court rules in a
plaintiff’s favor, it determines a settlement that can include the
debt, court costs, attorney’s fees, and interest. With approval from
the court, collectors can use wage garnishments and asset seizures
to recoup these settlements.

About 42% of debt collection lawsuits in Shelby County between
January 2016 and September 2019 involved a garnishment. Garnishment data were only available for this period. These rates
varied across debt types. Auto lender cases were most likely to lead
to garnishment, and 59% of those lawsuits during this period did so
(Figure 12). (3)

Affected Neighborhoods

Defendants in eight Shelby County zip codes accounted for half of
all debt collection lawsuits against county residents between
January 2016 and March 2023 (Figure 13). These zip codes only accounted for
36% of the county’s population. Many of these zip codes also had the
highest rates of debt collection lawsuits per 1,000 residents
(Figures 14 and 15). The rate of
debt collection lawsuits against defendants in 38125 (Southwind) –
270 cases per 1,000 residents – was about eleven times higher than
for 38139 (Germantown), where it was just 25 cases per 1,000.
(3) (4)

Debt collection lawsuit rates across zip codes varied more for
some debt types than others (Figures 16-21). For example, the rate of debt
buyer/3rd-party collector lawsuits varied from a high of almost 120
cases per 1,000 residents in 38125 (Southwind) to a low of no cases
in 38002 (Collierville). However, the range was much tighter for
bank and credit card lawsuits – 48 cases per 1,000 residents in
38125 compared to less than 1 case per 1,000 in 38017
(Collierville). These variations likely reflect the extent to which
different populations access different types of credit options —
with banks and credit cards more universally accessed than
high-interest lenders. (3) (4)

Among nearly 40 neighborhood characteristics we explored, only a
few emerged as having meaningful associations with debt collection
case filing rates. We looked at 39 zip code-level metrics representing demographics,
family structures, economic well-being, educational achievement,
workforce and jobs, transportation, housing, use of services and
supports, population changes, and health. Some – but not all – were
associated with higher rates of debt collection lawsuits filed
against defendants living in those zip codes. (3) (4) (6) (7) (8)
See the Appendix for a full list of the metrics we
explored, definitions, sources, and results.

The Shelby County zip codes with the highest lawsuit rates had
more black residents and fewer white residents (Table 1). These findings are consistent with
prior similar studies from other states. (9) (10) Only race had a
meaningful association for all debt collection suits and those by
debt buyers and collectors, high-interest lenders, and medical
providers. Higher auto debt suit rates were also associated with
more poverty and single-parent families, lower education levels and
household income, higher housing costs and use of food stamps, and
worse health. Bank and credit card case rates had no meaningful
associations with the characteristics we explored.

What It Could Mean

These findings give us some imperfect insights into both debt
collection practices and financial security.

Our analyses may give us some insights about who in Shelby County
may be most affected by different types of debt, variations in
access to credit, and overall financial security. For example, these data suggest that the black residents of
Shelby County may be more burdened by debt and debt collectors — and
the downstream consequences that come with those burdens.
Additionally, lawsuits by banks/credit cards and debt
buyers/collectors seem to have a comparatively more widespread
impact across neighborhood characteristics — likely reflecting the
latter as a traditional credit option that could be for any number
of expenses (including those covered by other debt types) and the
former as encompassing all debt types. Meanwhile,
a similar review of Davidson County cases
showed predictable associations that did not exist for Shelby County
– for example, between debt lawsuits and income, education levels,
and health. Further research would be necessary to better understand
why results differed across these jurisdictions.

Debt collection lawsuits may tell as much about business models
and debt collection practices as they do about delinquent debt and
financial security. There are no uniform standards for when a creditor may file a
lawsuit and no requirements for what types of efforts most creditors
must exhaust before suing someone (except
certain hospitals). As a result, these findings may partially reflect the degree to
which different kinds of collectors rely on courts as a routine
collection mechanism that allows them to garnish wages and assets
directly. Prior studies show that certain collector types are more
likely to take debtors to court than others. (11) (9)

Regardless of what may be driving the lawsuits, they can create
challenges for both courts and the people being sued. While the window covered by our data shows a decline in cases,
reports at a national and state level indicate an increasing
reliance on courts for debt collection. (10) (9) This can overwhelm
courts and divert resources from other types of civil cases. (11)
National studies also highlight several aspects of debt collection
lawsuits that adversely impact those that are sued, including:

• Notification — Individuals may never receive
  clear or proper notification of a lawsuit. As debts can be sold
  or contracted out to collectors, plaintiff names may not be
  familiar and get disregarded.
• Unchallenged Lawsuits — Nationally, most debt
  lawsuits go unchallenged. In a 2015 Consumer Financial
  Protection Bureau survey, about 15% of Americans contacted by a
  debt collector in the past year reported being sued. Of those,
  only about 26% attended the court proceeding. (12) Some reasons
  people may not attend include lack of notice or legal
  representation, receiving incorrect or misleading information,
  confusion about the alleged debt, resignation to an adverse
  outcome, and income, job, or travel constraints. (13)(14) When
  people don’t show up, courts often issue default judgments —
  ruling in favor of the plaintiff without any substantive review
  of the facts or defendant circumstances. (13) (11)
• Legal Representation — There is no guaranteed
  right to legal representation in civil suits, and — as our data
  show — many people who do challenge them are unrepresented.
  (14)(13) This often gives debt collectors an advantage, as
  non-lawyers may not have the expertise to challenge the
  plaintiff’s allegations. (14) (11) Plaintiffs often drop cases
  when defendants have representation. (13)
• Inaccuracies — Some studies have reported that
  suits can be brought based on inaccurate or incomplete
  information about the debt.(13) (14) For example, suits may be
  brought to collect on debts against the wrong individual or on
  amounts that have already been paid off. A 2009 review by the
  Federal Trade Commission found that only about 6% of purchased
  debt nationally came with any documentation. (15)
• Added Costs — On top of the
  original debt and any fees and interest that accrue pre-lawsuit,
  court settlements often add attorney’s fees, court costs, other
  reimbursable expenses, and post-judgment interest. Any
  settlement in Tennessee is subject to a pre-determined
  post-judgment interest rate set by state law — currently at
  10.25%. (16) In default judgments, interest can significantly
  inflate this new total without the defendant’s awareness.(11)
  These settlements can drag on for years as Tennessee has no time
  limit for enforcing civil judgments, but they must be renewed by
  a judge every 10 years. (17)

Parting Words

Debt collection lawsuits are a legitimate business practice that
helps ensure people meet their financial obligations and businesses
stay afloat. However, when lawsuits are over- or misused, it can
create trade-offs for the court system and those people lawsuits.
Court data provide a unique look into consumer creditors’ collection
practices and Shelby County Residents’ financial security. These
insights conjure additional questions to understand more about both.

Explore the Data

Explore neighborhood characteristics and compare debt types among
zip codes with the interactive dashboard below.

*Figure 3 was updated on January 22, 2024 to correct an error in
the total number of Shelby Co. debt collection cases displayed.

References