The return to normalcy could create some interesting financial circumstances for consumers in 2022. For example, there is some indication that debt collection efforts will increase next year. In some cases, increased debt collection will be the result of more consumers unable to pay their debts. In other cases, economic good fortunes will allow existing debtors to resume paying what they owe.
In Indiana for example, personal debt levels increased by 3.6% in 2020. That is higher than the national average of 3.0%. A cross-section of Indiana residents showed significant increases in student loan, automotive, credit card, and medical debt. Meanwhile, unemployment in the Hoosier state is comparatively low. Wages are also relatively high, thanks to competition for a limited labor pool. It all contributes to a recipe that could change the debt collection landscape come 2022.
1. Federal Programs Are Ending
One of the things expected to fuel increased debt collection is the end of federal programs put in place to help combat the economic fallout of the coronavirus crisis. Federal limits on debt collection efforts are set to expire at the end of 2021. Government moratoriums and extended grace periods on everything from mortgages to student loans are expiring as well. That means come January 2022, many of the monthly payments that consumers have been avoiding will return.
Common sense seems to dictate that those still living paycheck to paycheck are going to find themselves in trouble come 2022. This further suggests that more accounts will go into default before being sent to collection agencies. Even civil judgments are expected to rise considerably in 2022.
2. Standard Collection vs. Judgment
If all the expectations hold true, some people are going to involuntarily learn the difference between standard debt collection and judgment collection. In a standard debt collection scenario, creditors turn debts over to collection agencies who make it their business to secure payment. Some collection agencies work on contingency while others actually buy debt outright.
In a judgment situation, a creditor takes a debtor to court. Should the creditor win the case, a judgment is entered against the debtor for the amount owed plus court costs. The substantial difference with the judgment is that it gives collection agencies more tools and greater latitude to collect.
3. Garnishment and Asset Seizure
Judgment Collectors is a Salt Lake City collection firm that serves clients in six states. They say that two of the tools that civil judgments afford them are garnishment and asset seizure. These are tools that standard collection agencies do not have access to. And without a court judgment, neither one can be utilized.
It turns out that most states allow both wage and bank account garnishment. When wages are garnished, a certain amount of the debtor’s pay is withheld and put toward the outstanding debt. Employers are compelled by law to submit to legal garnishment orders. When a bank account is garnished, the debtor’s bank is legally required to freeze and withhold a certain amount of money to be put toward the debt.
In terms of asset seizure, judgment collection firms can foreclose on property just like a bank. Foreclosure results in the sale of the asset in question. Sale proceeds go toward covering the outstanding debt.
As the country slowly gets back to normal in the wake of the coronavirus crisis, political and economic conditions suggest a rise in debt collection. It is unfortunate, but that is what the data portends. If you are a potential candidate for debt collection, you can avoid the whole thing by working out payment plans with your creditors.