A reader asks some great questions about judgments. They give us the opportunity to talk about what judgments are and how they work.
I have fallen behind on some bills and one of the creditors told me that if I can’t pay, they will take me to court and get a judgment. Should I be worried about that? What is a judgment anyway? If I can’t pay, does it matter if they get a judgment?
What is a judgment?
The Encarta World Dictionary (North American edition) definitions include:
1. Legal verdict: the decision arrived at and pronounced by a court of law.
2. Obligation resulting from verdict: an obligation, e.g. a debt, that arises as a result of a court’s verdict, or a document setting out an obligation of this kind.
Typically, when you are talking about a judgment related to a debt, you are describing a “money judgment” that states how much money you owe to the person who obtained the judgment against you.
How does a creditor or collector get a judgment against you?
In order to get a judgment against you, the creditor or collector must take you to court. If you don’t respond, or if you lose, the court will issue a judgment in favor of the creditor or collector. The judgment will be filed with the court, and once that happens, it is public record. That means it will likely end up on your credit reports as a negative item.
How long can judgments appear on credit reports?
Unpaid, they can remain on your credit reports for seven years or the governing statute of limitations, whichever is longer. Once judgments are paid, they must be removed seven years after the date they were entered by the court.
How long can judgments be collected?
There is a specific time period for collecting judgments, and it varies by state. This “statute of limitations” is often 10-20 years long. In addition, in most states it can be renewed. For that reason alone, it’s best to try to avoid getting a judgment against you in the first place. And if it does happen, it’s best to try to resolve the debt.
[Infographic: What to do if a Debt Collector Calls]
Can interest accumulate on a judgment?
Yes. In most states, interest may be charged on a judgment, either at any rate spelled out in state law, or at the rate described in the contract you signed with the creditor. In addition, the judgment may include court costs, and attorney’s fees.
How are judgments collected?
One of the main reasons you want to try avoid getting a judgment against you is that creditors may have additional ways to collect once a judgment has been issued. Depending on your state’s laws, they may include going after your bank accounts or other property, or trying to garnish your wages.
But as the saying goes, “you can’t get blood from a stone.” As the National Consumer Law Center points out in its book, “Surviving Debt:”
Even if you lose a lawsuit, this does not mean you must repay the debt. If your family is in financial distress and cannot afford to repay its debts, a court judgment that you owe the money may not really change anything. If you do not have the money to pay, the court’s judgment that you owe the debt will not make payment anymore possible.
If you aren’t sure what a judgment creditor can do to collect from you, it’s a good idea to consult a bankruptcy attorney who can help you understand what may be at risk if you don’t pay. The attorney can explain what property you own is “exempt,” or safe from creditors. “Surviving Debt,” from the National Consumer Law Center is another good resource.
Can I settle a judgment?
The answer to this question is often “yes.” Most judgment creditors know it is often difficult to collect judgments, especially if the debtor doesn’t have wages that can be garnished or assets they can go after. If you are able to get a lump sum of money from, say a relative, you may be able to offer that to the creditor to pay off the judgment. Just make sure you get any agreement in writing before you pay. Make sure the agreement spells out all the terms of the settlement, including the fact that you will not owe any more money after you make the agreed upon payment.
How can I avoid a judgment?
Another option is to settle the debt before it goes to court. The creditor may be willing to settle for part or all of the money you owe. Of course that only works if you can manage to pull together money to pay them. If you can, make sure you have a written agreement from them that states they will not pursue the debt in court if you make the payment as agreed. Then check with the court to make sure the matter has been dropped.
Anything else I should know about judgments?
A debt collector that threatens to get a judgment against you or to garnish your wages or seize your property may be making an illegal threat. Talk with a consumer law attorney to find out if that’s the case.
And just because you haven’t heard anything about a judgment in a while, that doesn’t mean you should assume it has gone away. It’s possible that the creditor could decide at a later time to try again to collect from you. Plus, an unpaid judgment may prevent you from buying a home or getting credit at a decent interest rate. So it’s a good idea to try to resolve the judgment, either by filing for bankruptcy or by paying off or settling the judgment when you are able to.
If you’re concerned about creditor or your debt in general could be impacting your credit, you can check your three credit reports for free once a year at AnnualCreditReport.com. If you’d like to monitor your credit more regularly, Credit.com’s Credit Report Card provides you with an easy to understand breakdown of the information in your credit report using letter grades, along with two free credit scores, and it’s updated monthly – all for free.
Reminder: This post is meant as educational information, not legal advice. Please consult an attorney for legal advice.
Image: walknboston, via Flickr.com