Why the Amount the Debt Collector is Suing You For Almost Doesn’t Matter
From a normal consumer’s point of view, the threat posed by a suit for $500 or $1,000 is very, very different from one for $25,000 or $50,000. But the difference to the debt collectors is much less significant than you might think. There are several reasons for this, from the way they view risk to something called “opportunity cost.” We’ll discuss both of those things here. Our observation is that debt collectors do NOT treat cases for widely different amounts any differently – they follow their standard procedures.
As we discuss in our analysis of risk in regards to settlement, debt collectors look at three factors in evaluating their cases. These are risk of losing, price of winning, and chance of collecting.
Risk of Losing
Debt collectors regard the risk of losing to a pro se defendant as negligible. They don’t give any thought to losing at all, it would appear. Losing the case might have a devastating impact on your life, but to them it’s just all in a day’s work. And they don’t respect pro se defendants, so they don’t think they’ll lose anyway. Our materials are designed to help you try to wake them up to this risk a little bit, but for the most part the debt collector will think he’s going to win even after the judge issues judgment to you. Our members have experienced that attitude first-hand.
Price of Winning
Debt collectors take the price of winning far more seriously. For one thing, they start off knowing that getting the judgment will cost something. Every time you do anything that requires them to take action, it’s costing them more. They can see that, and they know that money is likely going away for good. Thus our materials aim to emphasize and increase this risk, and we are usually quite successful in doing so. Taking action that increases the cost of winning will have a significant impact on the way the debt collector values your case – it lowers the value of the case in the debt collector’s mind dramatically.
Of course if they’re suing you for $50,000, your actions wouldn’t seem likely to reduce the value of the case very much, right?
Wrong, and that brings us to the final risk factor, chance of collection.
Chance of Collection
Have you heard the expression that if you owe the bank $1,000 they own you, but if you owe them $1,000,000 you own them? This is related to the chance of collection factor. Banks know, and collectors know, that collecting $1,000 is usually possible against an unwilling defendant. But collecting a million dollars? Not going to happen. You probably won’t have it, and if you do, you’ll hide it.
That sets up a dynamic: the more you owe, the greater the collection risk discount. If they’re suing you for $25,000, nobody expects to collect anything like that. They might get a little more from you with a $25,000 judgment than a $1,000 judgment, but not enough to matter. In general.
Thus high dollar cases are not considered particularly valuable.
Opportunity cost is the cost of doing one thing rather than another.
Remember that the amount of debt in the U.S. is essentially unlimited. That means the opportunity for suing (other) people is equally unlimited.
Now remember that debt collectors get judgments approximately 80% of the time by default. That means they can file suit if 100 cases and get 80 judgments in about an hour. If those judgments, conservatively speaking, are for $5,000 apiece, that’s $400,000 in an hour. And these numbers are not only theoretically possible, but I have seen them happen many times.
Now consider your case for $50,000. Even if they thought they could get that – which they almost definitely do not – if they have to spend five hours working for it, they’ll lose perhaps two million dollars in default judgments in that time. Does that sound like a wise business decision?
Now you can never tell what any one person will do in any one given situation, but the numbers are strongly against the debt collectors treating your case – of whatever amount it’s for – any different from all the others. I have never seen it play out any differently.
And that means that it makes sense to defend yourself as much in big-dollar cases as little dollar cases.