Community Legal Services commissioned the following study by the Reinvestment Fund to learn about the impact of debt collection cases filed in Philadelphia’s “small claims” Municipal Court against people across the City, with a particular focus on race. The report includes statistics and maps related to case filings and top filers, service of process, case outcomes, judgment amounts, the frequency and impact of representation for defendants, and estimates on the percent of collection cases filed against homeowners, for whom a judgment is a lien on their home. The findings are based on the Reinvestment Fund’s review of more than three years of case data and Philadelphia property records and includes individual stories of people who have been sued in these cases.
- Black Philadelphians are overrepresented among defendants in debt collection cases. Nearly half (49%) of cases involved Black defendants, while 41% of Philadelphia households identified as Black.
- Representation improves outcomes for all defendants and appears to have a mitigating effect for observed racial disparities. In areas where we found what appears to be worse outcomes for Black and Hispanic defendants over all (e.g., awards for judgment on the merits cases, rates of judgments by agreements vs settlements) legal representation acts as an equalizer, reducing racial disparities in outcomes. Rates of defendant representation were roughly equivalent across different racial and ethnic groups, particularly after controlling for the claim amount – but Black defendants were least likely to have an attorney.
- Disparities in rates of default judgments between Black and White defendants and our interviews raise questions about service for defendants of color. It is not clear why Black and Hispanic defendants would have the highest rates of service, but also the lowest rates of appearing for court dates. In interviews, three of the five respondents reported being unaware of the court cases against them, despite court records that indicated they had been served and two said they had not been living at the address listed in the court documents at the time that service was allegedly made.
- Debt cases in Philadelphia’s court system are disproportionately filed by a small handful of plaintiffs. Over half of the 59,618 cases analyzed in this paper were filed by just four plaintiffs. In total, the top 10 plaintiffs filed 84% of all cases in the analysis – most of these are entities that purchase delinquent debts, and a few are banks.
- Black and Hispanic defendants were involved in cases with lower claim amounts, on average, than defendants of other races. Although defendant incomes were not available for this analysis, income data for areas where these claims are concentrated and for different races /ethnicities in the city indicated that these cases with lower claim amounts may represent equal or greater financial strain on Black and Hispanic defendants. Judgments represented over 10% of the median household’s annual income in zip codes that include neighborhoods with some of Philadelphia’s highest concentrations of lower-income Black residents: Mantua, Strawberry Mansion, and Nicetown-Tioga. Claim amounts against Black and Hispanic defendants represented a larger share of the typical income of a Black or Hispanic household in Philadelphia. For example, the average claim amount in a case involving Black defendants represented 8% of the median income of a Black Philadelphia household. The average claim amount in a case involving White defendants represented only 5% of the median income of a White Philadelphia household.
- Working with debt consolidation companies did not keep defendants out of court. Three interview respondents worked with debt consolidation companies to simplify and reduce their debt. For one respondent, the payment agreement she made with the debt consolidation company was too high, and she eventually stopped paying it, resulting in her case. Another respondent reported the lawyer from his debt consolidation company did not attend his court date, resulting in a judgment for plaintiff by default. A third worked with a debt consolidation company, but still ended up with two debt cases against her.
- Property ownership: We estimate that close to half of debt collection defendants lived in properties they or a family member owned. Four interviewees reported owning property in Philadelphia. In general, defendants identified as property owners had similar case outcomes as those who did not appear to own property in Philadelphia. No respondents were aware of any liens on their homes due to their debt cases. One respondent reported he planned to pay his debt by taking out a home equity loan. Another respondent wanted to buy a home, but her damaged credit score made it difficult to secure a mortgage.