It's a good time to be a debt collector. Consumer delinquencies are near their highest levels since the financial crisis, creating what analysts call a "Goldilocks" environment for debt collectors. Simply put: Debt is cheap, and collections are strong.

Consumer debt collectors purchase delinquent debt -- generally 180 days or more past due -- from major lenders for pennies on the dollar, then seek to collect the full amount from consumers. Increasingly, these collections are coming through the courts, especially for a group of firms that buy up debt en masse, assuming the responsibility of collection.

Publicly traded debt buyers Encore Capital Group and Portfolio Recovery Associates (PRA) saw their U.S. cash collections from litigation increase by 25% and 26%, respectively, in the latest quarter from a year ago.

The stocks have rallied, with Encore shares up 141% over the last 12 months and PRA rising 37%.

Debt collection actions are the most frequently filed civil suits in state courts. While companies face more upfront costs through litigation, experts say they can expect to receive default judgments in a vast majority of cases, allowing them to garnish wages, levy bank accounts, and liquidate certain property in some states.

Amy Ginsburg, an attorney who defends consumers in debt litigation, says that consumers who push back can frequently win dismissal or a steep discount, but few take that step. Roughly 3-in-4 cases end in a default judgment -- often because the consumer doesn't show up to court -- according to the Consumer Financial Protection Bureau.

Court filings offer a window into how this process plays out for consumers.

Data on consumer debt can be tricky to source, but eight states tracked by data science consulting firm January Advisors offer a clear picture of the trend: consumer debt filings climbed in seven of the eight states in 2025.

For PRA and Encore, U.S. legal collections continued to rise in the first half of 2026, helping drive overall cash collections at both companies.

At Encore, total U.S. cash collections reached a record $572 million in the second quarter, up 17% from a year earlier. Legal collections accounted for 37% of the total, up about three percentage points from the same quarter last year.

An Encore spokesperson said that the share of collections from litigation has declined over the past decade. In 2015, they made up 54% of total U.S. collections at the company.

PRA reported $291 million in U.S. cash collections, up 6% year over year. Legal collections accounted for 52% of the total, up about nine percentage points from a year earlier.

PRA declined to comment for this article.

Before turning to courts, debt buyers typically attempt to collect on debt through calls and emails, due to the higher costs involved in litigation.

"Litigation is a last resort at our company, and we'd prefer it never come to that," a spokesperson for Encore Capital Group said in a statement to Barron's.

Technology, in part, may be helping debt buyers increase their litigation success, while lowering their costs.

In its 2025 annual report, Encore described using internally developed proprietary statistical models to determine the likelihood and expected amount of collections from each consumer within a debt portfolio.

"During the collection process, we apply a number of proprietary operational frameworks to match our collection approach to an individual consumer's predicted payment behavior," the company wrote.

PRA takes a similar approach, using models and analysis to identify accounts with a "higher propensity to pay in legal recovery."

"The legal process can take an extended period of time and requires an upfront investment in court filing costs, but usually generates net cash collections that likely would not have been realized otherwise," PRA wrote in its 2025 annual report.

Regulators have repeatedly fined PRA and Encore over their collection practices.

In 2015, the Consumer Financial Protection Bureau ordered both companies to refund millions to consumers and pay $18 million in penalties for attempting to collect on legally uncollectible, inaccurate, or undocumented debts. The agency found that PRA and Encore filed sworn statements in debt collection suits falsely claiming their employees had reviewed the original documents to verify the debts. They also attached documents to these legal filings which they claimed were the consumers' specific account contracts or records when they weren't.

"These shortcuts allowed the companies to churn through lawsuits without doing the research and due diligence required to obtain a legitimate judgment," the CFPB wrote in a press release at the time.

Encore "disagreed with the allegations at the time, and many of the practices described in the consent order had been changed years before," the spokesperson for the company says.

In 2020, the CFPB settled a new lawsuit with Encore for a $15 million civil penalty after finding the company continued to sue consumers without the required documentation. PRA faced a similar fate in 2023 when the CFPB labeled it a "repeat offender" and ordered the company to pay over $24 million in penalties and restitution for relying on unsubstantiated debt records and failing to investigate consumer disputes.

"We include the documentation required to support our claims, and that has been our practice for years," Encore's spokesperson says.

Since the Trump administration began dismantling the CFPB early last year, regulatory penalties have become less of a concern for the industry, according to Mike Pierce, executive director of Protect Borrowers, a nonprofit consumer debt advocacy organization.

"If nobody else is watching, you take that extra risk because they're making a business judgment here," Pierce says.

But deregulation alone doesn't explain the surge in debt litigation, he says. Debt buyers are also benefiting from a deluge of cheap consumer debt.

In August, analysts at Citizens Bank described the U.S. market as a "cyclical sweet spot," with more distressed debt available for purchase, particularly from fintech personal loans and subprime credit cards.

Encore purchased a record $372 million in U.S. consumer debt in the second quarter. PRA's U.S. portfolio purchases fell in the first half of 2026, following two of its biggest debt-purchase years on record. Management said it is taking a more cautious approach to what it pays for debt, rather than simply trying to buy as much as possible.

Legal collections often peak 12 to 24 months after a debt portfolio is purchase. That timeline could be compressed going forward if other outreach efforts become less effective, says Scott Purcell, CEO of ACA International, an industry group representing debt collectors.

PRA and Encore have both said in filings that pervasive spam filters could make it harder to reach consumers by phone and email.

At the same time, federal regulations that took effect in late 2021 capped the number of times debt buyers can contact consumers each week.

PRA saw an 11% decline in call center collections in the second quarter. Encore reported a 13% year-over-year increase in call center and digital collections for the second quarter, lagging behind a 25% gain in legal collections.

While federal regulators have taken a step back, a growing number of state governments have passed legislation aimed at protecting debtors.

Earlier this year, Virginia became the 14th state to automatically protect $1,000 in consumers' bank accounts from garnishment, without requiring them to appear in court, according to The Pew Charitable Trusts

Virginia and Washington also enacted laws this year requiring debt buyers to provide records -- such as recent statements, original loan agreements or proof of ownership -- to show they are suing the right person for the right amount. Courts must also verify the documents' accuracy and authenticity.

While the CFPB's enforcement efforts remain reduced, there are signs it is starting to "wake back up," Pierce says.

In June, President Donald Trump nominated Brian Johnson to head the CFPB for a five-year term. Johnson, who worked at the CFPB from 2017 to 2020, told the Senate Banking Committee during his confirmation hearing that he opposed eliminating the agency, putting him at odds with Acting CFPB Director Russell Vought, who has supported dismantling the agency.

"I think it's an open question about what a new CFPB director will do here and whether Brian Johnson's CFPB will take this more seriously," Pierce says. "But there's a big difference between not doing everything and doing nothing."