Credit card delinquencies have started to rise recently after falling during the pandemic. For creditors, the final recourse to collect an unpaid debt is typically to sue the consumer in state civil courts. If the creditor wins the suit, the resulting “civil judgment” will often give the creditor the right to garnish wages or seize bank accounts, homes, cars, or other property to pay off the debt. Defendants in debt collection suits usually do not have counsel. Default judgments, in which the court finds for the creditor without ever hearing from the defendant, are common.
Civil judgments are public. These dry court records tell tales of people in financial distress. For example, John was sued for about $1,400 last year.1 After a default judgment allowing wage garnishment, the court ordered his grocery store employer to start garnishing some of his $16 an hour wage. It appears he left his job or was fired several months later. Because the creditor may not have collected much money, he may remain at risk of wage garnishment at his next job until the judgment is paid in full.
Despite their importance in the lives of struggling consumers, understanding civil judgments has been hampered by limited data. Our new working paper fills this gap by using credit bureau data to study civil judgments and their relationship to wage garnishment laws. In this blog post, we show that civil judgments are both common and unequally distributed.
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