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If a creditor gets a judgment against you for a debt collection item, you may wind up paying more than you bargained for. Our reader, Catherine, recently shared her experience with this:

On Feb 09, 2012 the court requested garnishment on my wages every month. The total judgment due is $6161.15. Payroll has been deducting 25% of my gross wage twice a month. On 11/09/12 the payroll made the last deduction for $174.04 to pay the balance from the total judgement due. $6161.15 is showing on my paycheck that was total garnishment they have collected on my paycheck.

This month the payroll received a fax from the creditor that I still owe them money and the balance is $798.01. My question is where is that amount coming from?…They told me that was the interest accrued from the balance from 11/09/2012.

Interest on a debt doesn’t stop accruing just because the creditor obtained a judgment. In most states, judgment creditors are allowed to continue to charge interest on these debts. If you are making small payments – or no payments – on a judgment you may find that your balance continues to grow and over time, these interest costs can really add up.

The Judgment Fine Print

Another reader, Gail, shared her son’s experience:

I brought my 20 yr. old son to court yesterday who has a dual diagnosis (schizophrenia & drug addiction). He is taking psychiatric meds, is unable to work and waiting for disability to kick in. While he was ill and not on meds he used his debit card that had $20 in the account, now with penalty charges he owes $1,000 plus $50 in court costs.

A lady representing the bank asked my son to fill out paperwork. She asked him then if he agrees to admit what he did was wrong and they would not come after the money, if he gets a job then they would want him to pay back.., he agreed and signed an agreement for judgment. I noticed after on this agreement paper when I got home that there is interest of 12%, she never told my son about that part of the agreement. Can he change his agreement?

In Catherine’s case, it sounds like about 12% interest had already been added onto the judgment over the past year. Depending on what state she lives in, that may be perfectly legal. In most states, judgment creditors can charge an interest rate of 10% – 12% annually on judgments, or whatever interest rate is called for by the loan contract. Anyone dealing with an outstanding judgment should talk with their state attorney general and/or a consumer law attorney to verify the interest rate that can legally be charged so they aren’t overcharged.

Tough to Track

Another problem with judgments is that debtors don’t receive monthly statements like they do with other debts. That makes keeping track of what you owe — including interest or fees — challenging at best. It also means that creditors may make mistakes and charge too much. A debtor who is trying to pay off a judgment should keep a careful record of all payments made and periodically check with the creditor to see what balance remains.

Judgments often remain in force for many years and can be renewed indefinitely, haunting debtors for years or decades to come.  If you owe one of these debts and you can’t get the balance paid down, you may want to consider either trying to negotiate a lump sum settlement of the debt or talk with a bankruptcy attorney to find out whether it makes sense to file Chapter 7 or 13 to get rid of it.

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