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How to Kill Zombie Judgments on Your Credit Report

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zombiejudgments_iStockphotoA judgment can suck the life out of your credit scores for years and make it difficult, if not impossible, to rebuild your credit. So settling or paying off a judgment is crucial if you want to get your credit back on track. But what happens when you can’t? La Recia wrote on the Credit.com blog:

Can a judgment be removed from my credit if the collection agency has gone out of business? They filed the judgment in 2008 and filed bankruptcy in 2012. They are no longer in business. Please Help!!

And she’s not alone. Another reader, Jen, shared her dilemma:

I have a judgment that was placed against me in 2011. I contacted them today to make a deal of some sort. The law firm had gone out of business! What do I have to do now?

To help our readers understand what they can do if they are haunted by zombie judgments, I spoke with Atlanta bankruptcy attorney Jonathan Ginsberg on Talk Credit Radio. He’s been in private practice for more than 23 years, publishes the Atlanta Bankruptcy Law Blog, and contributes to the Bankruptcy Law Network blog. What follows is an edited excerpt from our conversation:

Gerri: First, I want to start at the very beginning and describe what a judgment is and how these things end up on your credit.

Jonathan: A judgment is basically when a court has a mandated decision that you owe money. In other words, if you owe money to somebody and they file a lawsuit against you, you’re supposed to be served with papers. If you answer those papers and you go to court, (and) a judge finds against you, then a judgment will be issued. It’s a formal filing by the court that you owe something or something has been decided. If you don’t answer, it’s a “default judgment.” But either way, a judgment is where a court made a finding of law that you owe money.

[Related Article: The First Thing You Must Do Before Paying Off Debt]

Free Credit Check & MonitoringWhen They Never Really Disappear

Gerri: One of the big problems right now is judgments from collection agencies. They’re either collectors who are trying to collect from them or maybe debt buyers, which are a type of collection agency that buys old debts. (Let’s take La Recia’s situation.) She asks, “Can a judgment be removed from my credit if the collection agency has gone out of business?”

Jonathan: The main thing to remember here is there are two separate systems in play. One of them is of course the credit reporting system, which is private — that is where you have companies like Equifax or Transunion, or Experian. They report credit for private business. These are not government agencies. They’re private companies, they’re governed by a number of laws but they’re not government agencies.

A judgment, on the other hand, is where a creditor has gone to the court and gotten an official judgment from a court, which again has the power of law. In this particular case, the problem we’ve got is that the judgment creditor — that’s the person who got the judgment — filed a lawsuit, let’s say it was a default judgment, judgment was issued, now they’ve gone out of business.

The problem is that the judgment itself is on the public record. The very fact that the judgment creditor has gone out of business does not automatically remove it from the public records. Essentially, you have a judgment creditor that is long gone but the judgment remains out there and obviously it’s damaging your credit. I suggest a couple of things: One is that since the judgment creditor is in bankruptcy, there is a record of that bankruptcy. So one thing that she could do would be to look on the Pacer system, that’s Pacer.gov, and look up the bankruptcy filing of the judgment creditor. There will be a trustee in that bankruptcy case. Contact the trustee and see if they can negotiate a settlement for pennies on the dollar on that judgment and get it released. That’s one way to deal with it.

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Going On the Attack

The second way, which is a little more complicated, would be to file what is called a “collateral attack” on the actual judgment. Assuming the judgment creditor is no longer in business, they won’t respond to it. She could go back to court and say, “I want this removed because there was some mistake of fact” or “I wasn’t properly served,” or any number of things.

The debtor can also file a challenge with the credit bureaus. But again, the problem you’ve got is that since the judgment itself is public record, it will be confirmed by the credit bureau as a matter of law because it’s still a judgment there.

Gerri: Exactly. The credit bureau is not going to investigate the individual circumstances of this consumer’s situation. They’re just going to go back to the court, confirm that this judgment is there and then say it’s correct, and leave it on a consumer’s credit report.

Let’s talk about that second strategy that you mentioned moment ago, you called it the collateral attack. Would that also apply in a case in which the person who got the judgment or the company that got the judgment didn’t necessarily file for bankruptcy but just isn’t around anymore? Because we do get those questions where people say, “I just can’t contact the company anymore, I can’t find them.”

Jonathan: Again, what I mean with collateral attack is it’s already too late to contest the substance of the claim. That’s where the creditor says you owe money, they’ve got their judgment, it’s no longer an issue of whether or not you owe them money. A judge has decided that you do.

What you’re doing in that collateral attack is you’re saying there was some problem with the procedure. They didn’t properly sue me. I didn’t get notice and so we want the court to undo this judgment and give me another bite at the apple.

Again, in order to do that you’ve got to convince a judge that you’ve made a diligent effort to find the creditor or the creditor’s lawyer and that you’ve made every effort. And then you have to convince the judge that there was some mistake made, that you never got served or that there was some error in the procedure. But when there’s nobody on the other side, it’s a lot easier to win this type of cases than it is when you have somebody contesting it.

[Related Article: 11 Ways A Debt Collector May Be Breaking the Law]

Hunting Down Zombies

Gerri: Before we talk about settling and resolving judgments, I want to follow up on the question we were talking about, which involved someone who has a judgment on the credit report and they want to pay it but they can’t find the company. It’s old, and they simply cannot find the company to pay. What do you recommend they do?

Jonathan: Again, that’s a tough one and this is something that happens a lot because these judgments are sold, they’re commodities. Debt buyers buy them and sell them, and sometimes it’s difficult to figure out who actually owns them. Obviously, the credit report’s a good place to start, but sometimes it’s very difficult to do that.

Other than to really track it down, as we were talking about, one way to do it would be to file some sort of action in the court where the judgment was issued, assert that there was something improper and then serve everybody you can think of and then try to get them in front of the judge and say, “We want this undone.”

But that’s a real problem. I see this a lot where people have judgments, they want to pay them, they want to settle, but they can’t find who to pay.

Gerri: Can bankruptcy help you?

Jonathan: Yes, in a bankruptcy we can get rid of judgments by following a motion to avoid a judgment lien. And basically, it allows us to strip out the judgment to make it an unsecured debt and therefore the debt is treated like any other unsecured debt. Since unsecured debt is eliminated or paid at pennies on the dollar in a bankruptcy, you can effectively get rid of that judgment debt.

Gerri: If you have a judgment on your credit report and you’re having some problems, at what point does it make sense to get an attorney involved? And is it expensive? Because if you owe this money, you don’t have a lot of money to spare.

Jonathan: In my practice, I find sometimes people turn to bankruptcy because it’s a cheaper alternative to fighting these judgments. If you have three or four judgments and they’re all over the country and you’re trying to track people down, that can get real expensive. You’re going to be paying a lawyer by the hour to do that.

Of course, you can do a lot of it on your own but at some point getting a lawyer involved can get expensive. If you have several judgments and the amount is very high, sometimes bankruptcy — although you’ve got to grit your teeth to do it — can sometimes make more sense economically because generally bankruptcy attorneys will charge a flat fee for all the bankruptcy. Everything gets taken care of and it’s done, as opposed to chasing around five or six judgment creditors.

[Related Article: 7 Ways to Defend a Debt Collection Lawsuit]

Ignore Them at Your Own Peril

Gerri: What’s the most important piece of advice you want to offer in terms of consumers who have judgments on their credit reports and are trying to figure what to do next?

Jonathan: I would say don’t ignore it. What happens sometimes is that a judgment is rendered, nothing happens for two or three years. I got a call from a guy about two/three months ago, he had a judgment here in Georgia, about 11 or 12 years ago, and he heard nothing. Eleven or 12 years passed, he’s moved to a different city in South Georgia. All of a sudden, a debt buyer pops up and garnished his wages. And then what happened was that the judgment had been renewed.

You mentioned before that judgments stay on (credit reports) seven years but they can be renewed in court. And so now, the seven years was renewed for another seven years. Now we’re year 11. We have a debt buyer who has bought this (judgment debt) and they found him. Of course, in this computer age anybody can be found. His wages are being garnished and he’s scrambling.

Gerri: And that’s the other important warning: if you get a judgment against you, whether it’s on your credit report or not, it opens up new avenues for collection for the folks who got the judgment against you. It could be pretty serious.

Jonathan: Never ignore that. That’s really when it would make sense to talk to an attorney — whether your family attorney or a bankruptcy attorney — just to get a sense of what could happen; the timing of it, how fast you need to take action, when maybe you can negotiate. But yes, don’t ignore it because it does not go away.

Listen to the entire interview with Jonathan Ginsberg online, download to your smartphone or mp3 player or listen on iTunes.

[Free Resource: Check your credit score and report card for free with Credit.com]

Image: iStockphoto

  • Rina Kaiser

    I attended school in Pittsburgh & resided in Washington PA from 1995-1999. In 2007, I discovered a judgement on my credit report for 2003. It was only on one of the three and there was no information other than $3200, Washinton, PA. I called various offices in the town of Washington and not one found any record of a judgement related to me nor any address i had resided at. i then sent a dispute letter to the credit reporting agency, indicating I had never been served and requested further information to make sure it was valid. Several months later it was removed, but I never received a letter from the City of Washinton nor the credit agency. All this time I have been under the impression it was an error that was corrected. After reading this article, I am concerned this issue may become an issue. How do I find out about a judgement that is not on a credit report?

  • Mike

    Rina, from what I understand in the article is the judgement is two places. The first is on your credit report, which you say you disputed and it was removed. To check your credit report for free (the real free one, once per year), go to the freeannualcreditreport website. Be prepared to answer a bunch of questions to verify who you are, but it is legit when you use that site, I have a number of times in the past to verify my report. That will tell you all the accounts reported to them. It won’t tell you your score and each will try to have you set up an account and subscribe and sell you your score, but it’s not necessary to check your report for free. You can also go to your bank and they might pull your report for free and review it with you, but which agency they pull might differ and not all 3 major agencies (Experian, Equifax, and TransUnion) have the same info.

    So now you know about your credit report. The other place the judgement is, is public record. To get that cleared, you’d have to search to see if it’s really there and follow the steps described in the interview. You might want to call around and see if there’s a non-profit who can help for minimal fees, or find a lawyer who will do a free consultation and give you an overview of steps and fees. You’ll ultimately have to go to court and contest something like described above: you werent properly served or the debt isn’t correct. You may in turn have to serve other people, so that’s why I’d try to get some legal help.

    Best of luck!

  • Pingback: Credit Card Judgments: How Long Before They Expire? | Best Credit Repair

  • Joe

    What if a default judgment was obtained because I didn’t show up?? Years later the notice that was filled out and awarded the plaintiff misspelled my name bad.
    Can I get it thrown out because of a mistake?? The plaintiff guy was old then and isn’t even in business anymore and I do not know if he is even alive.
    I have read it is better to get a plaintiff to set aside a judgment for the credit then to have them report paid or settled in full. Is set aside the same thing as plaintiff vacating the judgment??
    Thanks

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