PHOENIX — When the bank sued Leann Weaver for not paying her credit card balance, her reaction was typical for someone in that situation. Personal and financial setbacks weighed her down, and she knew she owed the $2,470. So she never went to court to defend herself.
She was startled by what happened next. When she swiped her debit card at the grocery store, it was declined. It turned out Capital One Bank had taken $224.25 from her paycheck, a quarter of her wages for two weeks of work at a retail chain, and her bank account was overdrawn.
“They’re kicking somebody who’s already in the dirt,” she said.
In the rare event that a consumer battles back, creditors frequently lack the documentation to prove their claim, and cases are dropped. That is because many past-due debts are owned not by the banks that issued them, but by debt collectors who bought, for cents on the dollar, a list of names and amounts due.
The case of Sidney Jones shows how punishing the system can be. In January 2001, Mr. Jones, 45, a maintenance worker from California Crossroads, Va., took out a $4,097 personal loan from Beneficial Virginia, a subprime lender now owned by HSBC, the big bank.
He fell behind, and Beneficial sued. Mr. Jones did not appear in court. “I just thought they were going to take what I owed,” he said.
By default, Beneficial won a judgment of $4,750, plus $900 in lawyers’ fees, with the debt accruing interest at 27.55 percent until paid in full. The bank started garnishing his wages in March 2003.
Over the next six years, the bank deducted more than $10,000 from Mr. Jones’s paychecks, but he made little headway on his debt. According to a court order secured by Beneficial’s lawyers last spring, he still owed the company $3,965, a sum nearly equal to the original loan amount.
Mr. Jones, who did not graduate from high school, was baffled. “Where did all this money go that I paid them?” he said.
http://www.nytimes.com/2010/04/02/business/economy/02garnish.html?ref=business
I feel bad for anyone living in a state that allows garnishment. What's outrageous is the compounding debt slavery, that poor guy has really paid the bank more than twice over but because of the compounding interest and fees he's only made a small dent in the original $4,750 debt.
What's really going to hurt people are the student loans -- in this case, the federal government will garnish your wages, so there's no state where you can avoid the debt slavery. The trade schools and community colleges are so packed right now that the private career schools are doing brisk business. The problem here is that the private schools charge insane amounts of money, up to $23,000 for a freaking cooking certificate. When you start getting compounding interest and fees on a debt like that, it'll never be paid back.
