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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Personal Finances: Prioritizing and Paying off Debt

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When the calendar says it’s the first of the month, do you get excited about the opportunities that may arrive with the new month, or do you have panic attacks on how you are going to survive another month living in debt? 

If it’s the latter, read on. We’ll share tips on how you should prioritize debts to get your personal finances in the best shape possible.

In This Article

Pay Down Your Debts

There are two key successful methods for paying off debt and getting your personal finances in order:

1. Start With Your Lowest Balance First

First, review your debt – all of it! This includes credit cards, medical bills, and student loans. Organize your debt from the lowest to highest balance. Start with your lowest balance debt first, disregarding the interest rate. Once the lowest balance debt is paid, select the second-lowest balance debt, and so on until all your debt is paid off. 

Financial experts call this the “snowball method.” According to research, people struggling with debt have made significant strides in eliminating their debt using this method. Paying off your smaller debts is more achievable and inspires you to keep paying off the rest of your debt. Small successes can equal big payoffs on the road to becoming debt-free.

2. Pay The Highest Interest Rate First

With this method, you will organize your debts from highest to lowest interest rates and concentrate on paying off the highest interest rate debt first. When that debt is paid off, tackle the second-highest interest rate debt, and so on. 

What’s the purpose of this method? By paying off the highest interest rate debt, you help keep the debt from ballooning into the stratosphere to where it becomes harder to pay off the debt. Also, paying off the high-interest debt first keeps you from owing more overall on the debt. If you pay off the highest interest debts first, you reduce the total amount that you will owe on your way to becoming debt-free. From a total debt owed standpoint, this method is the most logical.

Caveat: If you continue to add to your debt while trying to pay it off, your efforts will be futile. Your first goal is to stop adding debt to the pile!

Which Debt is a High Priority?

If you are beyond the point of no return with managing your debt, the two methods above will not be enough. In fact, these methods may not be doable at all. Instead, here’s what you need to do immediately – start with your high priority expenses first. These are:

1. Food and Medicine

Are you familiar with Maslow’s Hierarchy of Needs? The ability to take care of your basic needs matters first, above all else in personal finances. These expenses are at the top of the list. So please earmark your income to buy food for you and your family. This also applies if you take medicine or need medical care (the type that requires pre-payment). This doesn’t include medical bills. 

2. Mortgage or Rent

You need to live somewhere practical, where you can keep paying your mortgage or rent payments. Real estate taxes and homeowner’s insurance falls within this priority if it’s not already included in the mortgage. Likewise, homeowner association fees should be deemed a high priority. If you don’t pay these expenses, you could lose your house and/or have a lien put on your mortgage.  

3. Utilities: Electricity, Oil, Gas, Water

Pay your utility bills, even if it’s the minimum payment to avoid disconnection. You should call the utility companies to see if they offer budget billing or if you qualify for hardship assistance. You don’t want to be left in the cold or the dark.

4. Auto Loans/Lease and Insurance

Pay these expenses if you live in the suburbs or country and need a car to get to work. Make sure you stay current with your insurance payments. If not, the creditor could purchase expensive insurance at your expense that may give you less protection. Also, in most states, it’s illegal not to have auto liability coverage.

5. Income Tax

In a letter, Benjamin Franklin wrote, “In this world, nothing can be said to be certain, except death and taxes.” Regardless of your debt situation, you must pay any income taxes you owe. This includes filing a federal income tax return, even if you are unable to pay any tax due.

6. Child Support Payments

If you are obligated to pay child support, this debt is a must-pay. If you don’t pay it, your wages could be garnished, and you may even get prison time for non-payment. We’re certain you don’t want that to happen!

Which Debt is a Low Priority?

The following debt is considered a lower priority when you are in debt up to your eyeballs.

Credit Cards and Medical Bills

Debt considered low priority is credit borrowed without collateral. This includes credit card debts and medical (doctor/hospital) bills. These types of debt don’t require collateral, such as a house or car, to acquire these loans and are considered unsecured debt. 

Tip! Creditors have little recourse in the short term if you don’t pay your bill. Consider credit counseling, debt consolidation, or even debt settlement. 

Loans with only Household Items as Collateral

This type of debt is also a low priority, as they are unlikely to affect your personal finances significantly. A creditor may ask you to use some of your household items as insurance on a loan. However, you should consider this loan the same as unsecured debt. The odds of a creditor taking your household items in exchange for monetary compensation are rare. Most household items have little resell value, and creditors would need to obtain a court order to seize them. Their time is not worth the expense.

Tip! Don’t feel threatened by a debt collector even if they inform you that they will sue in court. Your collateral may even be exempt from seizure. Discuss your options with a debt relief provider. 

What About Student Loans?

Student loans are in a league of their own and can ruin your personal finances if you’re not careful. They are not tied to collateral but cannot be discharged if you file for bankruptcy. Aside from student loan forgiveness, you must pay them. Student loans fall into two camps:

Government Student Loans

Government student loans should be paid before your low-priority debts. Since you acquired these loans with government funding, the law allows the government to pursue collection from you. These collection efforts include paycheck garnishment, tax refunds and liens, and reduction in Social Security benefits. You don’t want to go there. You work hard for your money.

Tip! You may qualify for income-based student loan repayments, deferment, refinancing, and loan consolidation. You may be able to get the debt canceled in a few situations. Contact your loan provider for more information.

Private Student Loans

Private student loans are like other types of unsecured debt and should be paid after your high priority debt and your government student loans, but before your low priority debt.

Tip: Refinance your student loan debt to reduce your monthly payment and interest owed. 

Connie Schlosberg is a highly experienced business content strategist, marketing and public relations leader, and management analyst. Career highlights include: Leading integrated planning teams and reviewing quality processes for performance and contract requirements for Department of Defense programs, analyzing complex program and budgetary obligations for a $2 billion portfolio, and writing dozens of articles for publication in newspapers, magazines, web sites, and blogs. Connie is a knowledgeable navigator of government and nonprofit business environments as well as a proven professional who has created reputable relationships with stakeholders, employees, the media, and the public.

Source: debtdiscipline.com

The Worst Ways to Deal With a Bill Collector

The Worst Ways to Deal With a Bill Collector

Dealing with a bill collector is never fun and it can be particularly stressful when you’re sitting on a mountain of debt. Sometimes debt collectors fail to follow the rules outlined in the Fair Debt Collection Practices Act. If that’s the issue you’re facing, it might be a good idea to file a complaint. But if you’re personally making any of these mistakes, your debt problem could go from bad to worse.

Check out our credit card calculator.

1. Ignoring Debt Collectors

Screening calls and avoiding bill collectors won’t help you get your debt under control. Debts generally have a statute of limitations that varies depending on the state you live in. Once it expires, the collector might not be able to sue you anymore. But you could still be responsible for paying back what you owe in addition to any interest that has accumulated.

In addition to the potential legal consequences of unpaid bills, letting old debt pile up can destroy your credit score. Unpaid debts can remain on a credit report for as many as seven years. So if your debt collector is getting on your last nerves, it might be best to stop hiding and face him head on.

2. Saying Too Much Over the Phone

The Worst Ways to Deal With a Bill Collector

If you decide to stop dodging your bill collectors, it’s important to avoid sharing certain details over the phone. You never want to say that you’ll pay a specific amount of money by a deadline or give someone access to your bank accounts. Anything you say can be used against you and agreeing to make a payment can actually extend a statute of limitations that has already run out.

A debt collector’s No. 1 goal is to collect their missing funds. They can’t curse at you or make empty threats, but they can say other things to try and scare you into paying up. Staying calm, keeping the call short and keeping your comments to a minimum are the best ways to deal with persistent bill collectors.

Related Article: Dealing With Debt Collectors? Know Your Rights

3. Failing to Verify That the Debt Is Yours

When you’re talking to a bill collector, it’s also wise to avoid accepting their claims without making sure they’re legitimate. Debt collection scams are common. So before you send over a single dime, you’ll need to confirm that the debt belongs to you and not someone else.

Reviewing your credit report is a great place to start. If you haven’t received any written documentation from the collection agency, it’s a good idea to request that they mail you a letter stating that you owe them a specific amount of money.

If you need to dispute an error you found on your credit report, you have 30 days from the date that you received formal documentation from the collection agency to notify them (in writing) that a mistake was made. You’ll also need to reach out to each of the credit reporting agencies to get the error removed. They’ll expect you to mail them paperwork as proof of your claim.

4. Failing to Negotiate the Payments

The Worst Ways to Deal With a Bill Collector

No matter how big your debts, there’s usually room for negotiation when it comes to making payments. If the payment plan your bill collector offers doesn’t work for you, it’s okay to throw out a number you’re more comfortable with.

Sometimes, it’s possible to get away with paying less than what you owe. Instead of agreeing to pay back everything, you can suggest that you’re willing to pay back a percentage of the debt and see what happens. A non-profit credit counselor can help you come up with a debt management plan if you need assistance. Whatever you agree to, keep in mind that the deal needs to be put in writing.

Related Article: All About the Statute of Limitations on Debt

5. Failing to Keep Proper Documentation

Whenever you communicate with a bill collector, it’s a good idea to take notes. Jotting down details about when you spoke with a collector and what you discussed can help you if you’re forced to appear in court or report a collector who has broken the law. Collecting written notices from bill collectors and saving them in a folder can also help your case.

Bottom Line

Dealing with bill collectors can be a real pain. By knowing how to interact with them, you’ll be in the best position to get rid of your unpaid loans and credit card debt (that is, if you actually owe anything) on your own terms.

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