SANTA CRUZ - Hundreds, and perhaps thousands, of local residents are being sued for debt collection in Santa Cruz Superior Court as lenders cope with credit-card losses they say are at historically high levels.
Lawsuits are being filed not only by credit card companies but also by debt buyers that buy, for pennies on the dollar, accounts for which borrowers have stopped making payments.
More of those being sued are middle-class families living on their credit cards due to the prolonged economic downturn. At the same time, they're being targeted by scammers offering to help reduce their debt.
Last month, a federal judge in Texas declined to dismiss a lawsuit by Linda Almonte, who lost her job as a supervisor in the Chase credit card litigation department in November after questioning the sale of 23,000 delinquent accounts purportedly worth more $200 million to a third-party debt buyer. She contended more than 11,000 California accounts did not have proper proof of judgment in Chase's favor. The lawsuit has spawned a website, www.legalmorass.com, to track developments in the case.
Asked about the Almonte case, Chase Card Services spokesman Paul Hartwick said, "We have thoroughly researched these allegations and are confident that the sales of these loans were handled properly."
Balam Letona, a Santa Cruz attorney, said thousands of lawsuits have been filed in Santa Cruz County by debt buyers where Chase doesn't appear as a party but the original debt was from Chase.
Henry Martin, an attorney with the Watsonville Law Center, is seeing middle-class families being sued by debt collectors and debt buyers.
"They're suing you as if they have proof of the debt," he said. "It would nice if they had to prove their burden."
When Lucia Paxton, 38, of Santa Cruz, a former credit union employee, was sued by debt buyer CCAH, a subsidiary of Collect America, to collect a $2,300 bill with J.C. Penney Co., she decided to fight it.
She said the debt buyer presented an account number that did not match hers and then failed to present a signed copy of her credit contract. She contended the evidence that the company owned her debt was lacking. She lost her court challenge, and was ordered to pay $2,300 plus interest and court fees.
automated COLLECTIONS
Locally, debt-collection cases make up about 40 percent of civil cases, according to Judge Jeffrey Almquist.
The Santa Cruz County Court's civil supervisor confirmed an increase in debt-collection cases, especially credit card debt, but did not provide specific numbers.
Court spokesman Tim Newman said these filings have increased the workload and the time it takes to process the cases.
In addition, attorney Alison Baker has seen an increase in people who have received a summons for a lawsuit involving debt. She mans the Self-Help Center in Watsonville, which provides information about options for responding to a lawsuit.
A search of the court's "open access" database found Chase filed about 330 collections cases in 2010 compared to 130 in 2007. Citibank filed about 350 cases in 2010, compared to 50 in 2007. Debt collector CACH, based in Denver, filed 50 in 2010 compared to 13 in 2007.
Last year, Feb. 22 was an especially busy day for Citibank, which filed 22 lawsuits on one day.
The increase in activity is due in part to changes in the way debts are collected, thanks to computer software that automates the process, and partly due to the hard times in which consumers are unemployed or making less money.
"We use litigation on a select basis," said Hartwick, adding, "Credit-card losses and delinquency rates have been at or above historically high levels, and that has resulted in a higher number of debt-collection lawsuits."
Another factor increasing lawsuits, he said, is debt-settlement companies advising people to stop making payments.
Hartwick said Chase is "committed to working with customers who are experiencing serious financial difficulty" but will not work with debt-settlement companies because of concerns cited by the Federal Trade Commission. He said Chase tries to reach customers "multiple times by phone and letter to offer assistance" and may reduce interest rates, waive late and over-limit fees, and extend the term of repayment.
Martin hasn't seen many interest rate concessions.
"If you're charging 28 percent, how are you trying to work it out?" he asked. "They're making record profits when everyone else's real income is declining."
consumer OPTIONS
Those who are sued over a debt have four choices: Answer the complaint within 30 days, do not respond, file for bankruptcy or settle.
Almquist said most cases end with a "default judgment." That gives the creditors the rights to garnish up to 25 percent of the debtor's wages or apply to withdraw money from the debtor's bank account.
Some cases are listed as "vacated," which can mean the debtor paid the debt, reached an agreement on a payment plan or filed for bankruptcy.
Almquist recalled one case where he stopped collections on a borrower who contended other people in his house ran up a tab on his credit card.
In another, a Watsonville man who claimed his brother-in-law used his credit card to charge $2,500 at an appliance store sued the collection agencies after the credit card company sent it to collection; the case ended in a $500,000 settlement for the local man.
Those are the exceptions. Generally, people sued for debt-collection do not fight it, according to Almquist.
"Mostly they don't file an answer," he said. "More would be contested if there were malfeasance."
Martin contends cost is a big factor, too.
"Most people in this situation can't afford an attorney to defend the case," he said.
Answering a complaint costs $225 to $395, unless the borrower qualifies as low-income and successfully applies for a waiver.
Martin noted the borrower must respond to questions during the "discovery" process where "a debt collector with an attorney has an advantage" over someone who represents himself.
He urged borrowers to seek help from a HUD-certified counselor such as SurePath, which also does free debt counseling, rather than paying for that service.
"Your success rate is going to be just as good as a service you pay for," he said.

WHERE TO FIND HELP
A debtor served a summons for a debt-collection lawsuit has 30 days to file an answer with the court. Here are places to go for information on how to respond:
Superior Court Self Help Center, in the Watsonville Court building, 1 Second St., Room 301, Watsonville. Attorney Alison Baker provides rules of the court, procedural information and forms to defendants and plaintiffs on a first-come, first-served basis from 8:30 to 11:30 a.m. Tuesdays and Thursdays. She does not provide legal advice.
Santa Cruz County Law Library, basement of County Governmental Center, 701 Ocean St., Santa Cruz: No staffing but information packets are available.
Small claims hot line 1:30-4 p.m. Tuesdays: 786-7370. Attorney Alison Baker will answer questions on procedures but not provide legal advice.
Sure Path, a nonprofit HUD-approved housing counseling agency with an office in Watsonville, offers free counseling on credit. For information, call toll-free (877) 615-SURE (7873).
Watsonville Law Center, a nonprofit, offers free legal services to low-income individuals. For information, call 722-2845.
Consumer advocate Bud Hibbs, based in Texas, provides information on the Fair Debt Collection Practices Act at www.budhibbs.com.