NEWARK — The nation’s recession has caused a jump in lawsuits filed in New Jersey’s courts over credit card debt, with formerly affluent people increasingly the target of litigation.
Lawsuits to recover debts of between $3,000 and $15,000 increased 25 percent from the fiscal year ending June 30, 2007, to the year ending June 30, 2010, court records show. Court officials say credit card debt is the main reason for that spike.
“The surge in cases has been astronomical in matters where the economy has a big impact,” said Winnie Comfort, communications director for the state’s judiciary.
Some of the state’s most affluent counties have seen the largest increases in cases, court records show.
Hunterdon saw an increase of 62 percent from 2007 to 2010, while Ocean saw a 56 percent jump and Bergen a 45 percent increase. That trend came as no surprise to Parsippany lawyer Mitchell Stein, who represents defendants in credit card suits.
“Traditionally, our clients were lower-income,” Stein said. “Now, you see a lot more people who were relying on credit cards to maintain their expensive lifestyles, and then they can’t pay their debts. They’ve lost their jobs, they’ve been through divorces or they have medical issues.”
James Shaw, of Parsippany, who is being sued by Chase Bank, fits into two of those categories. Shaw, a former landscaper, suffered a hip injury and has been unemployed for three years.
He said he received unemployment compensation “on and off.” Finding it “tough to pay the bills,” he charged expenses to his credit card.
Later, he used what money he had to stay in his home and pay for necessities such as heat and electricity. The credit card payments had to take a back seat.
Eventually, Chase said he owed $17,784, and took him to court in July. Shaw, who is representing himself in the case, filed a response asking that the suit be dismissed.
“I’ve been trying to negotiate a settlement with them, but the amount of payment they’re looking for is more than I can afford at this time,” said Shaw, who recently had hip replacement surgery. His situation is at an impasse.
Shaw’s story is an increasingly common one. Lawsuits filed under the category of “special civil — contracts” increased from 299,438 to 374,888 from 2007 to 2010, according to court records. Court officials say most of those suits involve credit cards.
And those numbers don’t include the thousands of lawsuits involving credit card debts larger than $15,000, which are lumped with commercial contracts in the state’s database.
The court’s employees, Comfort said, have been adapting to the extra workflow. In addition, attorneys pursuing large volumes of “special civil” suits are now required to file electronically through the Judiciary Electronic Filing/Imaging System. She cited statistics showing judges and their staffs have reduced the backlog in special civil cases by 31 percent in the past year.
“We have applied every management principle we can to keep the cases moving,” she said. The state figures bear her out. Although the total number of civil cases filed in the state increased by 88,963, or 14 percent, from 2007 to 2010, the numbers of cases resolved increased by 106,671, or 17 percent, over the same period.
Most credit card suits are either settled or dismissed, said Robert Tracy, civil division manager for the state Superior Court vicinage that includes Morris and Sussex counties.
If defendants don’t pay up and don’t show up on their trial dates, companies will obtain court orders to seize their bank accounts, garnish wages or perhaps take assets, he said.
But the lenders don’t always succeed in getting their money back.
“When the economy is bad, sometimes people just don’t have it,” Tracy said.
Customers’ failure to pay credit card bills in New Jersey is part of a national trend that saw banks reporting record numbers of “charge-offs,” permanent losses from credit card debts, this year. A “charge-off” is determined after the bank has sent letters seeking payment and then instituted collection or a lawsuit — and nothing has succeeded.
In the second quarter of 2010, charge-offs from credit cards totaled $18.5 billion nationwide, representing 10.5 percent of all credit card debt, according to the Federal Deposit Insurance Corp. This was a slight drop from the record of $18.7 billion charged off in the first quarter of 2010.
One large bank, Chase, which has sued hundreds of its credit card customers in New Jersey, reported nationwide losses of $3.72 billion from charge-offs during the second quarter of 2010.
Paul Hartwick, a spokesman for Chase Card Services, said that in addition to the economic climate, another factor behind the rise in lawsuits is the increase of debt-settlement companies “that often instruct individuals to stop making payments” even though the bank hasn’t agreed to the arrangement.
Chase doesn’t do business with debt-settlement companies, according to a statement from the bank. But for people facing financial hardships, the bank may restructure loans to make payments more affordable or may make arrangements with state-licensed, nonprofit credit-counseling agencies. Those agencies in turn negotiate reduced payments for customers.
Marlene Cilsick-Lefort, of Norwood, called the Cedar Knolls agency she worked with, Consumer Credit Counseling Service of New Jersey, “a godsend.”
As a single parent putting two children through college, she fell into debt after she used her credit cards to pay for her children’s books, travel and part of their tuition.
“The interest rates went sky-high,” said Cilsick-Lefort, who works as a buyer for a company that builds television broadcast facilities. “All of a sudden, I just couldn’t pay anymore.”
With the help of the counseling agency, she said she paid off all her debt, and “it felt wonderful.”
This is an AP member exchange.