Goldman & Warshaw PC, Part 5: how aggressive debt collectors could hurt a state.

as a follow-up on my last post, this is what I’m thinking:

New Jersey has about 9 million people. Some do well, many get by, but some end up on hard times. Let’s say it’s one-half-of-one percent in a year. This would be 45,000 people out of a state of 9 million.

And furthermore, let’s say that half of these 45,000 get sued for defaulted debt. So that is 22,500 people. And they are going to be sued, on average, for $5,000. Credit card debt. Special Civil Part of Law Division.

The “nominal value”, the value if you add up all those $5,000 debts against 22,500 people, is $112,500,000 (One hundred twelve million, five hundred thousand dollars.)

This is the potential amount of judgment money. If all the judgments are awarded, and all the money is collected, AND the debt collector law firm gets half, that is potential $56 million plus going to all the debt collector law firms.

But reality wouldn’t work that way.

Some number of the people who see the summons and complaint, or the judgment, will head to the bankruptcy attorney.

In recent years, New Jersey had an average of 40,000 bankruptcy filings a year. Out of the 22,500 in my example, let’s say 20% decide the bankruptcy route. That’s 4,500 who choose bankruptcy simply because they are facing Special Civil Part litigation about debt.

And more, let’s assume that they aren’t running to the federal bankruptcy court just because of $5,000. But rather, they have another $30,000 on average in other debt. So the total debt that this small group of 4,500 people is asking the bankruptcy judge to extinguish is ($35,000 times 4,500 equals) $157.5 million.

And these 4,500 people otherwise would have been open to settlement or some other arrangement to pay off everything. But firms like Goldman & Warshaw PC decided to put the pressure on, and they tip just 20% in bankruptcy.

And as a result, the whole creditor community loses $157.5 million.

OK back to the 80% who don’t go running to the bankruptcy judge. That’s 18,000 people. So the potential pool of judgments is $90 million, based on an average $5,000 a piece. We will assume that for these cases, the Special Civil Part of Law Division has Judge Victor Ashrafi-style “efficiency” (read: carelessness-about-the-rule), and wham! The 18,000 now all have $5,000 judgments against them with 10% wage garnishments.

The law firm debt collector industry is New Jersey is potentially in for 50% of that take. So $45 million. PLUS they get a stipulated portion of the judgment as fees.

PLUS–and this is what makes the smelly state so special–the court officers going to collect the judgment in the various counties pick up a potential $9 million, that they split among themselves.

Forty-five million will go back to the original creditors, usually big banks or high-interest money lenders.

Now, what I wonder about, is if the creditor community (the actual creditors) are better off with this system?

The whole creditor community mentioned in this example had lent $270 million. That was the $112.5 million that the law firms decided to sue on originally, PLUS the ($157.5 million – 22.5 million) $135 million extra wiped out in bankruptcy because of the litigious nature of the debt collector law firms.

But all the overall creditors get back is less a bit more than 18 cents on the dollar. The $45 million on the overall $247.5 million,

45 million divided by 247.5 million, is

(18.18% that I round to 18 cents on the dollar).

And arguably, if the creditors had just done normal settlements or work outs with people, they would have gotten, maybe, 18 cents on the dollar.

I don’t know what the actual figures are. And in reality, no one but God does.

But I could see where the New Jersey set up is simply making the law firm debt collectors and the Sheriff’s court officers rich. Rich beyond the wildest dreams of avarice. And keeping the bureaucrat Special Civil Part judges with enough to do in their fiefdoms (since they are probably ONLY going to do the work that gets them by, rather than actually read statutes or find facts.)

How come other states, that don’t have wage garnishments or have dedicated state officials like Andrew Cuomo watching out for them, still have credit card industries lending there? People in Pennsylvania get cards. People in New York get cards.

It really just smells like another crooked New Jersey thing. It really does.