Esther Roman, a 60-year-old grandmother in Brooklyn, was alarmed when she noticed in January that her $300 weekly paycheck was $27.99 short. She called her employer, a home health care agency, which said her wages were being garnished after someone sued her, claiming she'd failed to pay an old credit-card bill.

Roman was blindsided. She had never been served with a lawsuit.

It turned out that more than 10 years earlier, a process server had delivered the legal papers to the wrong address and falsely stated they were accepted by a "Mr. Roman—Relative" between 51 and 65 years old. But Esther Roman actually lived half a mile away and only with her children, then ages 15 to 32.

A few days after finding out she'd been a defendant for better than a decade, Roman got a letter from a city marshal saying she was on the hook for $2,078.50, half of which was accumulated interest.

"I said, 'Oh my God, how am I going to pay?'" she recalled. "I couldn't sleep. I was desperate."

Roman was the victim of an old game in the debt-collecting business known as sewer service. The ruse works like this: A debt collector buys defaulted debt from a bank, then sues the debtor without notification and falsely states the lawsuit was properly served. When the debtor does not show up in court, a default judgment is routinely entered, and the collector is free to start garnishing wages....

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