What is a Judgment?

June 4, 2020 &• 6 min read by Gerri Detweiler Comments 737 Comments

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A judgment is an order issued by a court of law. When you borrow money, you are legally required to repay the debt. This includes opening a credit card account, getting a line of credit from your bank and obtaining financing for a big purchase.

You can also become indebted to service providers. This can include utility companies, medical professionals, cell phone service providers and auto mechanic shops. They provide a service to you and then bill you, similar to a credit extension.

So, what happens when you don’t pay a bill or repay a debt? The company, creditor or collection agency has legal ways to pursue payment. One of those options is to sue you. If they are successful, the court issues a judgment against you.

What Happens After a Judgment Is Entered Against You?

The court enters a judgment against you if your creditor wins their claim or you fail to show up to court. You should receive a notice of the judgment entry in the mail. The judgment creditor can then use that court judgment to try to collect money from you. Common methods include wage garnishment, property attachments and property liens.

State laws determine how much money and what types of property a judgment creditor can collect from you. These laws vary. So, you need to look to your own state for the rules that apply. A consumer law attorney can help you understand your state’s laws on judgment collections.

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What Is a Judgment on Property?

Your property includes both physical items and money. That means judgment creditors can seek debt payment from more than your wages and bank accounts. They may also take back a car you financed or other personal property. Another option is placing a lien on some of your property, such as your home.

What Property Can Be Taken to Settle a Judgment?

Creditors must follow the law when applying a judgment to take, or seize, your property. Some things are exempt—which means they can’t touch those items or properties. Some examples include the home you live in, the furnishings inside it and your clothes. State laws identify these items and set limits based on their value.

Non-exempt property can be taken to help meet a judgment debt. Your creditor can take or leverage these possessions in the following ways:

  • Wage attachments. This is known as wage garnishment. When your employer receives the proper legal notice, they must withhold a percentage of your wages. These payments are sent to the judgment creditor until your debt is paid.
  • The Consumer Credit Protection Act caps these types of garnishments. The limit is 25% of your disposable weekly wages or the amount you earn that’s above 30 times the minimum wage. The lessor of these two amounts applies. Some states set the cap even lower.
  • Nonwage garnishment. If you’re retired, unemployed or self-employed, your bank account may be garnished instead. Here, too, there are exemptions. Veterans payments, social security and disability benefits are not eligible for nonwage garnishment. Some states add even more restrictions to the garnishment of bank funds.
  • Property liens. If you own real estate, your judgment creditor may file a legal claim against it. These liens notify lenders of the creditor’s rights to your property. That way, if you sell your real property, the debt must be paid out of the proceeds. In many states, liens are placed automatically when a judgment is entered.
  • Property levies. Judgments may also allow some of your non-exempt personal property to be taken through a levy. Law enforcement may seize things like valuable collections or jewelry to be sold at auction. Sales proceeds are applied to your debt.

What Can You Do to Avoid a Judgment?

Heading off a lawsuit is the best way to avoid a judgment. To do so, don’t ignore calls and correspondence from your creditor. Reach out to learn if they’ll accept suitable payment arrangements. Educate yourself on smart ways to pay debt collectors, and consider using the services of a debt management agency.

What if the loan company or debt collector has already started the lawsuit? Don’t skip court. Show up and fight. You may win if the statute of limitations has expired.

If you haven’t made a payment on an old debt for many years, you may have a successful legal defense. Most states set the time frame between four to six years. Collectors often still file suit because they win by default if you don’t show up. So, it’s important that you go to court with proof of your last date of payment.

If you successfully defeat or avoid a judgment, don’t stop there. Take some sensible steps to help you get out of and stay out of debt. Adopting these smart financial habits can also help prevent future judgment actions.

How Long Can the Judgment Creditor Pursue Payment?

The answer depends on where you live, since state laws differ. Some states limit collection efforts to five to seven years. Others allow creditors to pursue repayment for more than 20 years. With the right to renew a judgment over and over in many states, it may last indefinitely.

Judgment renewals may be repeated as often as desired or limited to two or three times. This is another state-specific issue. Judgments can also lapse or become dormant. The creditor must then act within a specific time frame to revive it.

What Happens When You Can’t Pay a Judgment Filed Against You?

If you own a limited amount of property, it may all be exempt from judgment collection efforts. Also, you may not work or only work part-time. With the CCPA cap, that may mean you don’t earn enough for garnishment.

This inability to pay your debt is called being judgment proof, collection proof or execution proof. While these circumstances exist, the judgment creditor has no legal way to collect on the debt. It’s not a permanent solution. The creditor may revisit collection efforts periodically for many years.

For a more permanent solution, you may want to consider filing bankruptcy. This process can discharge or eliminate most civil judgments for unpaid debt. Exceptions apply for things like child support, spousal support, student loans and some property liens. Speak with a bankruptcy lawyer to learn whether this will help your situation.

Can You Settle a Judgment?

If you can afford to pay a decent lump sum, you may be able to negotiate a settlement. The judgment creditor may be willing to settle if they fear you will otherwise file bankruptcy. Get the terms and settlement amount you agree upon in writing. Be sure the creditor agrees to file a satisfaction of judgment with the court after they receive your pay off.

Can a Judgment Be Challenged or Reversed?

Challenging and overturning a judgment is difficult, but not always impossible. This is the case if there were errors. Perhaps you weren’t notified of the suit or it was never your debt to begin with. Consult with an attorney to find out whether you have grounds to challenge the decision.

If you want to challenge a judgment, act fast. If you received prior notice of the case, you may have up to six months to reopen it. If you weren’t notified, you likely have up to two years to appeal. By reopening the case, you have the opportunity to fight the claim anew.

Do Credit Reports Still Include Judgments?

For many years, credit reports included judgment information. But that changed in 2017. The National Consumer Assistance Plan is responsible for creating more accurate credit data requirements. These changes resulted in the removal of civil debt judgments from credit reports.

Judgments are still a matter of public record. But the NCAP now requires that there be identifying information on these records for more accuracy. That data includes a social security number or date of birth along with the consumer’s name and address.

Public records cannot include this type of identifying information. It would violate privacy laws. This is the reason these judgments are no longer reported on credit files.

How Do You Find Out if You Have Any Judgments Against You?

You should receive a summons when you’re being sued. So, you can expect a default judgment will follow if you don’t show up in court. You can also expect a notification when a judgment is entered against you.

Mistakes happen, though. You may have missed the notice or moved to a new address. If that happens, you may not learn of the judgment until collection actions start.

What if You Find a Judgment on Your Credit Report?

Take action if you learn that judgments are still being reported by Equifax, Experian or Trans Union. The NCAP eliminated this practice. So if there’s a judgment on your report, this is definitely something that you should dispute. Credit repair services, like Lexington Law, can help you dispute the error and correct your report.

If you’d like a more in-depth look at your credit score, give ExtraCredit, our newest product, a try. It has five killer features that all work together as a solution to your credit troubles. Plus, you’ll be able to see all 28 of your FICO credit scores. 

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Disclosure: Credit.com and CreditRepair.com are both owned by the same company, Progrexion Holdings Inc. John C Heath, Attorney at Law, PC, d/b/a Lexington Law Firm is an independent law firm that uses Progrexion as a provider of business and administrative services.

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Can I Sue a Company for Sending Me to Collections?

A woman in a wheelchair sits with her laptop in front of her as she talks on the phone.

It happens. A collections notice shows up, a debt collector starts calling or you find a negative report on your credit history, but you know you paid the account in question. Can you sue a company for sending you to collections for money you didn’t owe? Find out more about what the law says about your rights when it comes to protecting your credit history.

How Does the Law Protect Your Rights Regarding Credit Collections and Reporting?

Numerous federal and state laws protect your rights to fair and accurate credit reporting. Some of those laws also cover your rights as a consumer to fair debt collection practices. A few of the laws that might come into play are as follows:

  • The Fair Credit Report Act ensures your right to an accurate consumer credit profile. It obligates companies to report truthful information on your credit report. It also provides some ways you can challenge information you think is inaccurate.
  • The Fair Debt Collections Practices Act  also helps ensure creditors are honest when reporting or collecting debts. Additionally, it prohibits collectors from engaging in harassing or abusive behavior to collect a debt, including contacting you excessively or at inappropriate times. You might be able to report or seek remedies from collectors who break these FDCPA rules for fair collections.
  • The Truth in Lending Act is part of the Consumer Credit Protection Act. This law deals with what information lenders must disclose, how they can advertise their products and rates and what rights you have when a lender isn’t truthful or transparent.

Credit law can be complex. If you’re not sure which laws cover you or what the best course of action is in your case, you might need to consult with an attorney.

Can You Sue a Company for Sending You to Collections?

Yes, the FDCPA allows for legal action against certain collectors that don’t comply with the rules in the law. If you’re sent to collections for a debt you don’t owe or a collector otherwise ignores the FDCPA, you might be able to sue that collector.

It’s a good idea to do everything you can under the law to protect your rights before you sue. That might include requesting validation of any debt within 30 days of receiving the first notice, for example. But even without that action, the collector can still be liable if it breaks the law.

According to the FDCPA, civil liabilities are limited to the amount of damages actually experienced plus any additional damages awarded by the court. Those additional damages are limited to $1,000 in individual cases and $500,000 in class action suits.

Can You Sue a Company for False Credit Reporting?

Yes, you might be able to sue a company for false credit reporting. However, before you seek a civil remedy through the courts, you should properly exercise your rights under the law.

Begin by challenging the information with the credit bureau. False information hits credit reports for a variety of reasons, including misunderstandings and honest mistakes such as clerical errors. When you sent a credit dispute letter, the bureau must investigate and respond within a time frame dictated by the regulation.

The investigation typically involves contacting the reporting creditor or collection agency. That entity is given a chance to demonstrate the information is accurate via appropriate documentation. If the credit bureau determines the information is inaccurate or can’t be proven, it typically removes or corrects it.

The Fair Credit Reporting Act lists civil penalties for people or businesses that willfully refuse to comply with accurate credit reporting. Actual damages are limited to a range of $100 to $1,000. You might also be able to recover attorney’s fees and additional punitive damages the court can award on a case-by-case basis. Punitive damages are those awarded as a type of punishment for the person or business engaged in wrongdoing.

Coronavirus Impact on Credit Reporting and Your Rights

The Coronavirus Aid, Relief and Economic Security Act of 2020 (CARES Act) made some temporary modifications to creditors’ legal requirements for reporting. For example, it requires creditors to report accounts as current in certain situations where forbearances were granted.

Forbearance means the creditor agrees you don’t have to pay the loan for a certain period of time. During that time, you won’t be penalized by having the account reported as late.

If you think your collection or credit reporting issue should be be protected under the CARES Act, consider consulting a lawyer. One can help you understand your rights, which laws affect them and any action you might take next.

How Do You Sue a Collection Agency or Other Creditor?

We’re not legal experts at Credit.com, so we can’t give legal advice. We’ve provided a good amount of information to help you understand your rights under the law. But if you think suing a debt collector or other creditor is the next best step, consult an attorney.

A legal professional can help you understand if you have a claim against your creditor, for example. That person might also be able to advise you about other options, including debt settlement, if you do owe any money.

If you ended up here because you just discovered inaccurate information on your report, consider credit repair services from providers such as Lexington Law or CreditRepair.com. And if you have no idea what’s on your credit report, consider signing up for a service such as ExtraCredit to stay as informed as possible.

Disclosure: Credit.com and CreditRepair.com are both owned by the same company, Progrexion Holdings Inc. John C Heath, Attorney at Law, PC, d/b/a Lexington Law Firm is an independent law firm that uses Progrexion as a provider of business and administrative services.]

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Source: credit.com