With debt collection lawsuits rising, here’s what you need to know

Debt collection lawsuits have risen in the U.S. since the COVID-19 pandemic ended as a global health emergency in May 2023. Research shows Black and Hispanic borrowers are more likely than white and Asian borrowers to have a court judgment against them in debt collection cases.

Borrowers past due on their debts may face a variety of collection actions from lenders, including phone calls, mailings and lawsuits. Debt collection lawsuits can be particularly burdensome to individual borrowers facing well-heeled financial institutions or third-party debt buyers.

Among potential causes, researchers point to the phaseout after the pandemic of federal and corporate efforts to ease debt collection.

Debtors facing lawsuits often experience various financial challenges, which lawsuits may compound. These may include taking out new debt to pay off existing debt — known as a debt trap cycle — which can lead to lower credit scores and higher interest payments in the long run.

While Congress abolished debtors prisons in the 1800s, debtors can also face arrest if they don’t comply with court orders. Sometimes, debtors don’t know they’re being sued.

Medical debt remains a top form of consumer debt, while some types of medical-related debt, such as co-pays for office visits, may not show up in data on medical debt. To help enrich local and national reporting on debt collection lawsuits, we cover recent research on:

The landscape of debt collection lawsuits

Consumer debt is any debt an individual takes out unrelated to running a business. This may include credit cards, medical debt, mortgages, auto loans and student loans. In 2025, total household debt in the U.S. topped $18.5 trillion, with about $13 trillion in mortgages, according to the Federal Reserve Bank of New York. About 14 million people have more than $1,000 in medical debt, while 3 million have more than $10,000 in medical debt, according to a 2024 KFF analysis.

It is illegal under the Fair Debt Collection Practices Act for debt collectors to use “abusive, unfair or deceptive practices” when collecting debt, according to the Federal Trade Commission. When lenders send written notices to debtors, federal law requires they include certain information, including the amount owed and when the debtor can no longer dispute the debt. There are also rules about when and how often lenders can call debtors.

One way lenders recoup money from delinquent borrowers is by filing lawsuits in state civil courts. During the pandemic, those lawsuits declined, as many Americans lost their jobs and faced reduced pay. Credit card companies offered forbearance, giving borrowers extra time to pay their debts. The Coronavirus Aid, Relief, and Economic Security Act provided forbearance for most mortgages and federal student loans.

“The CARES Act’s consumer protections, as well as other financial institution loan forbearance programs, likely helped avoid sharp increases in loan delinquencies,” according to a May 2021 report from the Congressional Research Service.

But debt collection lawsuits are rising, particularly over the last two years, in some of the most populated states. The Debt Collection Lab at Princeton University tracks these lawsuits across all or parts of 12 states, and is one of the only repositories for this information.

That data shows a general upward trend since 2022 in Arizona, California, Colorado, Connecticut, Indiana, Minnesota, Missouri, North Dakota, Ohio, Pennsylvania, Texas and Virginia.

A recent analysis from January Advisors, a data consulting firm, uses case-level data from the Debt Collection Lab, with additional individual case data in Wisconsin and Virginia, and aggregate case data for Texas. For states with case-level data, January Advisors was able to assess characteristics of individual cases, while for Texas they could only assess statewide trends. There were seven states with statewide debt lawsuit data available for the analysis.

Consumer debt cases in 2024 in Connecticut, North Dakota and Texas were up about 20% from 2019 levels, the year before COVID reached the U.S. Minnesota in 2024 matched its level in 2019. Wisconsin, Indiana and Virginia were all below their 2019 levels, but up substantially from 2022, which marked the recent low point for debt cases in those states.

In states where full data is available, a large percentage of collection lawsuits are filed by a small number of firms. In Connecticut, for example, 10 plaintiffs account for 80% of the debt docket, according to an analysis by Pew Charitable Trusts of the January Advisors and Debt Collection Lab numbers.

Some of those plaintiffs are firms that buy debt from lending institutions for a fraction of their value, says Lester Bird, senior manager at The Pew Charitable Trusts, who coauthored the analysis. This means people might be sued by an entity they’ve never heard of, not the institution that loaned them money.

“In many states, they don’t even have to say who they purchased a debt from,” Bird says. “They don’t have to give you information. They don’t have to tell you how many times that debt was bought and sold. And so, for consumers, it gets really confusing.”

Some of the most prolific debt buyers filing lawsuits since the pandemic include LVNV Funding, Midland Funding, Portfolio Recovery Associates, Jefferson Capital Systems and Cavalry SPV, according to a January Advisors analysis of six states with full data on individual cases — Connecticut, Indiana, Minnesota, North Dakota, Viginia and Wisconsin.

LVNV Funding has been particularly active, with their filings up 350% since 2019, according to the Pew analysis. Credit card companies Capital One and Discover Bank also file at a high rate, the analysis found.

How default judgments work

In the world of debt collection litigation, a judgment means the court orders the borrower to pay the debt. A judgment may allow the lender to recoup what they’re owed through garnishing the borrower’s wages or bank funds, or putting a lien on property.

“When people get sued for debt, most can’t afford a lawyer,” writes David McClendon, a principal consultant at January Advisors, in a December 2025 blog post. “In many states, they also can’t simply show up to court to defend themselves. They have to file a formal written answer within tight deadlines, sometimes paying hundreds of dollars in filing fees to participate in their own case. Only then will the court give them a date and time to show up.”

Courts could improve show rates among defendants by dropping the requirement that they respond in writing, and allow them to simply show up in court, according to a January Advisors analysis.

Default judgments are automatic judgments that don’t consider the merits of a case, typically because the defendant did not respond to the lawsuit. Default judgments favoring plaintiffs are common — on the order of 70% in some jurisdictions, according research from Pew.  

“The No. 1 outcome we see is a default judgment,” Bird says. “A default judgment, that’s an automatic win for the plaintiffs because no one engaged. After that, we see a bunch of cases that’ll get settled or dismissed. Very rarely do we see judgments in favor of a defendant.”

Garnishments and other measures may be taken against borrowers of virtually any debt, including credit card, medical and student loans. The Department of Education, for example, began sending garnishment notices this month to some borrowers in default, following a six-year respite for borrowers from garnishments.

Race and class disparities in debt collection lawsuits

Judgments vary by race and ethnicity of the debtor, even after controlling for personal income, credit scores and levels of delinquent debt, finds a 2024 paper in the Journal of Banking and Finance.

“Black and Hispanic borrowers are 52% more likely to experience a debt collection judgment,” compared with white and Asian borrowers, the authors write. They estimate the gap in debt judgments using a nationally representative panel of credit data drawn from credit bureau Experian, merged with racial and ethnic information from federal mortgage data, from mid-2013 to mid-2017.

In addition to financial harm from wage garnishment and other collection measures, pressure from debt collectors can exact a mental health toll on borrowers, finds a 2025 paper in the Journal of Health and Social Behavior. Drawing on a national longitudinal survey conducted by the Bureau of Labor Statistics, the authors examine mental health outcomes related to debt collection for 7,236 people born from 1980 to 1984.

They find that, by age 40, more than 1 in 3 people in this cohort had been “pressured to pay bills by stores, creditors, or bill collectors,” with rates of 55% for lower-income adults and 49% among Black adults.

In considering the effects of debt collection on psychological distress, the authors look at self-reported symptoms of depression for the cohort, with results from nine follow-up surveys through 2019, after the initial survey in 1997. They conclude that “debt collection pressure is associated with increased psychological distress, with more severe consequences among low-income young adults.”

Around 1% of U.S. workers were having their wages garnished to creditors in 2019, finds a 2024 paper in American Economic Review: Insights. With data spanning 2014 to 2019 from Automatic Data Processing, the largest payroll firm in the U.S., the authors find an increase in garnishments toward the end of the period, “driven primarily by a rise in new student debt garnishments.”

Garnishments in the sample last about five months, with about 11% of gross earnings sent to creditors each month. Wage garnishment was almost twice as common for middle class workers in zip codes where residents were  predominantly Black or had lower levels of average education.

“The magnitude of these collections raises the possibility that unexpected wage garnishment could severely strain workers’ budgets and cause them to fall behind on other bills, thus potentially perpetuating a cycle of debt,” the authors write.

Lawsuits related to medical debt

Many Americans are familiar with medical debt, despite most having health insurance. Four in ten adults in the U.S. — more than 100 million people — have medical debt, according to KFF Health News. There is no national database of debt collection lawsuits, so it is difficult to say how many suits related to medical debt are working their way through state courts at any given time.

But researchers suggest medical debt suits are fairly common.

“Our best guess is 25% to 35% of a state court’s docket is related to medical debt,” Bird says. “You just wouldn’t know it.” 

That’s because medical debt can be “a lot more complicated than it looks,” he says. For example, people put copays and deductibles on their credit cards — but that’s tallied as credit card debt. 

“That will never count as medical debt,” Bird says. “A lot of medical debt reforms are missing a significant amount of debt because they’re so narrowly scoped to only hospital debt.”

Most doctors work for large corporations, whether nonprofit or for-profit, and have nothing to do with patient billing or debt collection tactics their organization may use, says Dr. Luke Messac, an instructor of emergency medicine at Harvard Medical School.

“Patients will ask me how much something will cost,” he says. “I can’t answer that question, because it depends largely on what kind of insurance they have, what kind of negotiated rate the hospital has with that insurer, how exactly what I write down is written into the bill, which I really don’t know.”

Luke Messac compares how doctors billed patients in the 1800s with the current medical billing system. Interview conducted Dec. 16, 2025, by Clark Merrefield.

Messac, a historian and author of the 2023 book, “Your Money or Your Life: Debt Collection in American Medicine,” has found that hospitals and debt collectors have both pushed for less oversight when it comes to federal rules about medical billing and collection.

The Affordable Care Act of 2010 prohibited nonprofit hospitals from pursuing “extraordinary collection actions” without first making “reasonable efforts” to figure out if a patient was eligible for the hospital’s financial assistance program, as Messac and co-authors explain in their 2024 paper “The Policy Alliance Between Hospitals and Debt Collection Agencies,” published in Inquiry: The Journal of Health Care Organization, Provision and Financing.

But collection actions the federal government viewed as “extraordinary” were still being worked out, and “reasonable effort” remained undefined. In 2012, the Internal Revenue Service issued proposed regulations with a “reasonable effort” definition:

“In general, to have made reasonable efforts under the proposed regulations, a hospital facility must determine whether an individual is [financial assistance policy]-eligible or provide required notices during a notification period ending 120 days after the date of the first billing statement.”

When a federal agency proposes rules or regulations, the public is often allowed to comment, including individual people or organizations. Between June and October 2012, the proposed IRS rule received 224 comments. Commenters included health care organizations, debt collectors and debt buyers.

Their comments are essentially a public record of their point of view at the time of how “reasonable effort” should be defined. Messac and his co-authors in their 2024 paper organized the comments to pinpoint thematic overlap among the commenters.  

“There’s a lot at stake in defining exactly what a hospital and a third-party debt collector have to do before they start engaging in these actions,” Messac says. “Hospitals, it turns out, and their debt collectors were largely aligned in arguing that less should be done.”

In addition to responding to the proposed “reasonable effort” definition, Messac and his co-authors identified several other issues commenters raised. Weighing in on what should be considered “extraordinary collection actions,” hospitals and debt collectors “were nearly unanimous in arguing that debt sales and adverse credit reporting should not constitute ECAs,” the authors write.

“Patients can end up in real dire straits, you know?” Messac says. “Getting their bank accounts seized, getting their homes put liens on — even getting arrested — when they can’t afford care. I’ve spoken to medical audiences around the country and the uniform reaction is horror and anger at what’s going on. But it’s also ignorance. [Doctors] haven’t been involved in this process. We’ve relinquished so much control to people who don’t have the same responsibilities to patients.”

In addition to confronting dire financial straits, families with children facing any amount of medical debt are also more four times more likely to experience food insecurity, research has found.

Another issue raised in the comments for the 2012 proposed rule was whether hospitals should be responsible for collection tactics of third-party debt collectors they sell debt to or otherwise engage with to collect outstanding balances.

“Hospitals worried about being liable for the actions of debt collectors if they pursued [extraordinary collection actions] without meeting the criteria for ‘reasonable efforts’ to determine eligibility for financial assistance,” the authors write. They find that of the 67 hospitals that offered an opinion on liability for third-party collections, “all were opposed to such liability.”

Of the 16 patient advocacy organizations that stated an opinion, all favored hospitals being liable for third-party debt collection tactics. One organization, the Colorado Consumer Health Initiative, wrote, “Only if hospitals remain financially or otherwise responsible will there be sufficient deterrence of inappropriate behavior by third parties.”

The IRS issued its final rule on the last day of 2014. The agencies described several actions as falling under “extraordinary collection actions,” including a hospital reporting delinquencies to credit rating agencies, and selling debt to third parties without making “reasonable efforts” to determine whether a patient is available for financial assistance.

“In the final rule, a hospital can be said to have made such efforts if it has notified the patient that there is [a financial assistance policy], given the patient an opportunity to remedy an incomplete application, and processed any complete application to determine eligibility,” the authors conclude. “In other words, federal regulations allow a hospital to sue a patient even if the patient qualifies for assistance, as long as the patient has not successfully completed the application for charity care.”

In examining debt lawsuits filed by hospitals in Virginia, the authors of a 2019 paper in the Journal of the American Medical Association identified 48 hospitals in 2017 that garnished an average of $2,783 from 8,399 patients. There were 34 nonprofit hospitals, 12 for-profit hospitals and one was government owned, with garnishments more common at nonprofits than for-profits. One-quarter of hospitals that garnished were rural, while three-fourths were in urban areas.

The 48 hospitals that garnished wages had $806 million in average annual revenue, compared with $946 million in average annual revenue for the 87 hospitals that did not garnish wages. Five hospitals, four of them nonprofits, accounted for more than half of all garnishment cases.

Luke Messac on state reforms to help patients use financial assistance programs at hospitals. Interview conducted Dec. 16, 2025, by Clark Merrefield.

The role of AI in debt collection lawsuits

Chatbots trained on large language models have generally made it easier for individuals and organizations to file lawsuits. For example, a homeowner involved in a simple contract dispute with a builder over an incomplete renovation could turn to a chatbot for help writing a legal petition, according to the nonprofit National Center for State Courts.

But it’s unclear the extent to which the recent rise in debt collection lawsuits is fueled by the AI tools that have recently become widely available.

“When someone uses AI to create a petition, if the petition is sufficient — if it doesn’t contain hallucinations — the court doesn’t know, or frankly care, if it was AI-generated or not,” says Diane Robinson, principal court research associate at NCSC. “And so there’s no real way for us to track that.”

People using chatbots for advice, whether legal or mental health related, is an ongoing concern for the public and professional organizations. Still, Robinson says she’d be surprised if law firms were not using AI to create first drafts of petitions in debt lawsuits. In fact, businesses exist that do that.

“You do research in this area, you know that in many jurisdictions it’s a relatively small number of filers who are filing the vast number of petitions,” she says. “These firms buy up debt, they buy it for pennies on the dollar, they file a whole bunch of lawsuits. I think AI certainly makes that process easier and quicker for doing those kinds of volume filings.”

An open question, she says, is whether those petitions make a sufficient legal case and are vetted by human lawyers before being filed in court — especially considering how common it is for cases to end in a default judgment in favor of the plaintiff.

“The whole system is built on being an adversarial system,” Robinson says. “But when that system breaks down, there’s a real risk that insufficient petitions are getting default judgments.”

Potential solutions for state governments

Journalists covering debt lawsuits should understand their state laws on the topic, as they can vary widely and affect which types of debt lenders may sue over. LawAtlas out of Temple University’s Center for Public Health Law Research is a good source to start to get a handle on your state’s laws.

The Pew Charitable Trusts’ Courts & Communities project offers an overview of steps they say state legislators and courts can take to improve defendant participation in debt cases. These include:

• Using GPS tracking to show that people delivering paperwork for courts attempted to serve debtors being sued.
• Enacting legal standards to make sure debt lawsuit petitions are legitimate.
• Eliminating the need for a formal written response to debt lawsuits and automatically scheduling hearings.
• Automatically applying state legal protections related to garnishments, instead of making debtors request those protections.

Connecticut is one state that has tried to improve its debt lawsuit regulations. In 2011, the state mandated that plaintiffs present more complete evidence when attempting to sue debtors, in an effort to reduce frivolous lawsuits.

“The reforms led to a decrease of approximately 10 filings per quarter by third-party plaintiffs relative to first-party plaintiffs, suggesting that the heightened documentation requirements may have deterred meritless lawsuits,” write the authors of a 2024 report from the Debt Collection Lab.

Still, when the authors randomly selected 88 lawsuits brought by debt buyers from 2021 to 2022, they found not one case where the debt buyers complied with all the documentation requirements.

“Despite the noncompliance, in most cases the debt buyer obtained a default judgment,” the authors write. “This is a failure of plaintiff compliance, but responsibility also lies with the courts as — per the rules and statute, judgments are not supposed to have been entered in these cases.”