If a creditor sues you over a past-due debt and wins, it results in a judgment. This is essentially a court order stating that you need to pay the creditor what you owe. But what if you can’t afford to pay the entire amount immediately? Can you make payment arrangements after a judgment?
It’s possible, but the process can be complex. So, if you’re interested in arranging a payment plan after a judgment, read on to learn how.
In a debt lawsuit, a judgment is a court’s formal decision about who owes what to whom. Let’s say you borrowed money and defaulted on that loan. The lender or company you owe money to (the creditor) can sue you in court to get you to pay.
If the court agrees with the creditor, it will issue a judgment stating that you legally owe them a specific amount. This amount can include what you originally owed and additional charges like interest, court, and attorney fees.
Getting a judgment against you in a debt lawsuit is a serious matter. It means you must legally pay the money back within a certain timeframe. If you don’t, the judgment creditor can take further steps to get the money from you. This may include garnishing your wages or freezing your bank account. An unpaid debt like a judgment can also harm your credit score. Poor credit can make it harder to borrow money, rent an apartment, or even get certain jobs in the future.
Here’s a closer look at the judgment process:
- Demand letter: Before initiating legal proceedings, the creditor often goes through collection efforts. If those don’t work, they will eventually send a demand letter to the person who allegedly owes the money, outlining the amount owed and requesting payment.
- Filing a complaint: If you still don’t make any payments, the creditor or debt collector can initiate a lawsuit by filing a summons and complaint with the appropriate court.
- Service of process: After filing the complaint, you’ll be officially notified of the lawsuit. This means you’re served with a copy of the complaint and a summons to appear in court. This is known as “service of process.” This can occur by mailing, email, or in person, depending on the state and agreement you signed with the creditor.
- Response: You then have a specific period (usually about 20-30 days, depending on the jurisdiction and how you were served) to file a formal response to the complaint. This is also known as your “answer.” Failure to respond can result in a default judgment in favor of the creditor. This does not mean you physically go to court but submit a specific form paper filing.
- Discovery: Both parties may engage in demands for discovery to gather evidence supporting their case.
- Pre-trial motions: Either party may file pre-trial motions to resolve issues before trial. For example, a creditor might file a motion for summary judgment if they believe there are no factual disputes and are entitled to judgment as a matter of law. This means they ask the judge for a definitive end to the case and win against the debtor. Alternatively, you can resolve the debt through a negotiation process, such as settling the debt. It’s advisable to have an experienced debt help attorney assist you with this process.
- Trial: The case goes to trial if the matter is unresolved through pre-trial motions or settlement. Both parties present evidence and arguments, after which the judge or jury renders a verdict.
- Judgment: If the court rules in favor of the creditor, a judgment will be issued specifying the amount of money you owe them.
A judgment in a debt lawsuit can have several negative effects on your finances, both immediately and in the long run:
- Immediate payment obligation. The most immediate impact is that you’re legally required to pay the debt as outlined in the judgment. This can include the principal amount, interest, court fees, and sometimes even attorney’s fees.
- Wage garnishment. If you can’t pay the debt right away, the creditor might get permission to take a portion of your wages directly from your paycheck until the debt is paid off.
- Bank levy. The creditor could also get the right to take money directly from your bank account. And when this happens, you’ll have no warning of the freeze.
- Property lien. In some cases, a lien may be placed on your property or real estate, like your home, as security against the debt. This means you likely won’t be able to sell or refinance your property without first paying off the debt.
- Credit score. A judgment will also be recorded on your credit report, often causing a significant drop in your credit score. This can make it more difficult to get loans, credit cards, or even rent an apartment in the future or impact a job opportunity.
- Limited negotiation power. Once a judgment is issued, you have less room to negotiate the debt repayment terms with your creditor.
- Stress and emotional toll. Beyond the tangible financial impacts, the stress of dealing with a judgment can also negatively effect your overall well-being. It could even impact your performance at work or relationships at home.
If a judgment is entered and you don’t have the funds to pay what you owe, it may be possible to negotiate a payment arrangement directly with the creditor. However, your negotiating power is often weaker post-judgment compared to before a judgment is issued. At this point, the creditor already has the legal backing of the court to enforce payment through methods like wage garnishment, bank levies, or property liens. Many creditors are still open to payment arrangements after a judgment for several reasons.
For one, even with a judgment, collecting the money can be time-consuming and expensive for the creditor. They might prefer a voluntary payment plan over having to go through additional legal steps. A payment plan also offers the creditor a more reliable stream of payments rather than the uncertainty of forced methods like garnishments.
Here are some steps you can take to improve your chances of a successful negotiation:
First, have a clear understanding of your financial situation. Know how much you can realistically pay monthly without compromising your basic living expenses. This will serve as your baseline for negotiations.
Reach out to the creditor or their legal team as soon as possible after the judgment. The sooner you contact them, the more willing they might be to negotiate. When you make contact, express your willingness to settle the matter and ask if they’re open to a payment arrangement.
Make an initial offer based on your financial analysis and anything you may have learned about the creditor’s preferences. It’s generally best to start with a payment plan you can adhere to, even if it seems low. Making consistent payments is much better than defaulting on a more ambitious plan.
If the creditor agrees to a payment arrangement, get all the details in writing. This should include the total amount to be paid, the due date for each payment, any penalties for late payments, and any other terms. Both parties should have a signed copy.
If you haven’t enlisted the help of a debt relief attorney up to this point, it would be wise to consult a debt help attorney who regularly does this. Have them review the agreement before finalizing any payment arrangement, especially after a judgment has been entered. The right legal advice can ensure you’re not agreeing to unfavorable terms and that the agreement is enforceable.
Once the arrangement is agreed upon and formalized, stick to it. Missing payments can lead to more severe actions, like wage garnishment or property seizure.
Remember, the specific procedures and laws can vary depending on your location. Again, it’s a good idea to consult a legal professional to guide you through this process.
Tayne Law Group is a New York-based law firm assisting individuals and businesses with resolving their debt issues for over two decades. If you are receiving calls from debt collectors, recently had a judgment entered against you, or need help with a delinquent debt before it becomes a debt collection lawsuit, contact us for a free, no-obligation phone consultation with a specialist from our team. Call today at 1 (866) 890-7337 or fill out our short contact form. We never share or sell your information, and all conversations are confidential.