Debt collection lawsuits surge 77% in Texas as consumer stress mounts

Debt collectors filed more than 636,000 lawsuits across Missouri and Texas alone in 2025 as Americans struggled with record credit-card balances.

Lawsuits filed by debt collectors over unpaid credit-card bills and other outstanding balances surged to their highest levels in years in 2025, according to a report released Thursday by the Pew Charitable Trusts, as consumers strained by inflation and elevated interest rates fell behind on payments.

The number of collection lawsuits filed in Missouri nearly doubled to 121,572 last year from prepandemic levels, while Texas posted a 77 percent increase to 515,371 over the same period, the report showed. All eight states tracked — Massachusetts, Minnesota, Missouri, North Dakota, Texas, Utah, Alabama and Virginia — recorded increases between 2024 and 2025 except North Dakota.

"This represents a lagging indicator that shows the financial and economic stress a lot of Americans have been facing over the past several years," said David McClendon, a researcher at January Advisors, the data consulting firm that helped compile the report.

The nation's total credit-card balance reached $1.25 trillion in the first quarter of 2026, the highest first-quarter reading since the New York Fed began tracking the measure in 1999. Most lawsuits are filed over unpaid credit-card debt and medical bills, with about three-quarters involving amounts under $4,000, said Lester Bird, the report's lead author and a senior manager at the Pew Charitable Trusts. The typical debt in these cases is small enough that legal fees can quickly exceed the amount owed.

The lawsuits are typically filed by companies that purchase consumer debts for pennies on the dollar from original creditors such as hospitals, banks and credit-card companies. By the time a case reaches court, the debt is usually well past four months overdue, making litigation a last-resort recovery tool. The report examined court records from eight states that specifically track these claims or make them publicly available.

Default Judgments Hit Middle-Income Households

An estimated 70 percent of the cases end in default judgments for the creditor, often because borrowers do not realize they are being sued, cannot navigate the court system or simply fail to respond, Bird said. Those judgments can trigger wage garnishment directly from the debtor's paycheck, liens on homes and bank account seizures — consequences that can compound financial distress for years and push households further from stability.

Roughly half of those sued for debt earn at least 300 percent above the federal poverty level, the equivalent of about $99,000 in household income for a family of four, according to January Advisors estimates. That suggests the litigation wave is hitting middle-income households, not just the most financially vulnerable borrowers. The data challenges the assumption that debt collection lawsuits primarily target low-income consumers.

The surge in collection lawsuits comes as major US banks this week reported higher earnings and lower customer delinquencies, reflecting a split economy where large lenders focus on borrowers with strong credit profiles. The contrast highlights the gap between consumers who have weathered the post-pandemic inflation cycle and those still catching up on accumulated debt. The last time credit-card balances approached similar levels relative to household income was in the period preceding the 2008 financial crisis, though the current banking system is better capitalized and consumer balance sheets overall are stronger. For debt buyers and collection firms, the rising volume of lawsuits suggests courts remain an efficient and profitable channel for recovering unpaid balances.

What's at Stake for Consumers

The Pew Charitable Trusts is pushing for courts to make the legal process more transparent for defendants, including providing clearer information about who is filing the claim and what steps consumers can take to defend themselves. Researchers noted that most people sued over debt do not have legal representation, leaving them at a significant disadvantage in court proceedings where creditors are typically represented by specialized law firms.

With credit-card balances at record levels and borrowing costs still elevated relative to prepandemic norms, the pipeline of potential lawsuits is likely to remain full in the near term. The report's authors said they hope the data will encourage courts and policymakers to address the procedural barriers that leave many consumers unable to defend themselves in debt collection cases. For households already stretched by higher living costs, a default judgment can set off a cascade of financial consequences — from wage garnishment to damaged credit scores — that takes years to reverse.

This article is for informational purposes only and does not constitute investment advice.