Facing a debt collection lawsuit can be a daunting experience. The legal process can be complex and confusing, making it difficult to win the case. So what happens if you lose a debt collection lawsuit?
There are several significant negative consequences to losing a debt lawsuit and having a judgment entered. These can include wage garnishment and liens against your property. So, if you’re currently facing a lawsuit, it’s important to understand these potential ramifications and what to do next.
What Is a Debt Collection Lawsuit and Why Does it Happen?
A debt collection lawsuit is a legal action taken by a creditor or a collection agency to recover money that is owed to them by a debtor. This usually occurs when the debtor fails to repay a debt according to the terms agreed upon with the creditor.
However, lawsuits take time to happen. They’re typically the result of failing to make payments for quite some time. They’re the creditor’s last resort for collecting the money you owe. Before a lawsuit is filed, the creditor will typically contact you numerous times to get you to pay. They may also decide to sell your debt to a third-party debt buyer or collection agency, which takes over responsibility for pursuing the debt.
Once a lawsuit is filed, whether it’s by the original creditor or a debt collector, it’s crucial that you file your answer right away. This is a formal written response that you submit to the court in response to the creditor’s complaint. In the answer, you can address each allegation made in the complaint. You’ll either admit to them, deny them, or state that you don’t have enough information to admit or deny.
If you fail to answer by the deadline (usually 20-30 days from being served), a default judgment is entered by the court. At that point, the creditor wins the lawsuit. You don’t get the opportunity to defend yourself, and the creditor can now take additional steps to recover the funds you owe.
What Happens if You Lose a Debt Collection Lawsuit?
In the context of a debt lawsuit, a “judgment” refers to the final determination made by a judge or court regarding the case. Essentially, it’s a legal declaration of whether or not the defendant owes the alleged debt and, if so, how much they owe.
If you lose a debt collection lawsuit, the court will formally record the judgment indicating that the creditor won the case. The judgment will detail the amount the debtor owes, including any attorney’s fees, court costs, interest, and other charges. Once a judgment is entered, it generally becomes immediately due, and the creditor can then enforce the judgment to try to collect their money.
If the judgment is not paid immediately, interest may begin to accrue on the amount owed, potentially increasing the total amount that you will have to pay in the end. The creditor can also start taking enforcement actions to collect on the judgment.
Wage garnishment
Wage garnishment is a legal process where the employer withholds a portion of a person’s earnings to pay off a debt. Generally, this is a percentage of your gross wages (the exact amount depends on the state where you live).
Your employer will receive a notice or order of garnishment from the sheriff or the court, requiring them to withhold a certain portion of the employee’s wages each pay period. The withheld wages are sent to the creditor through the sheriff, marshall, or other entity collecting until the debt is satisfied or other arrangements are made to settle the debt.
Federal law restricts garnishment to a maximum percentage of disposable earnings, and state laws may offer additional protections. Even so, garnishment ultimately reduces the amount of money a person takes home. This can create financial strain, making it difficult to meet basic living expenses and other financial obligations.
Seizure of assets
Another option creditors have to collect a debt is seizing certain assets.
For example, creditors can levy or freeze your bank accounts. This means they can take funds up to the amount owed directly from your bank accounts. In some jurisdictions, creditors can seize personal property, such as vehicles, jewelry, or artwork. However, there are usually limits on what can be taken, and essential items are often exempt to some degree.
Liens on property
When a creditor places a lien on your real estate or other property, it essentially means they have claimed a legal interest in your assets due to unpaid debts. The lien is usually recorded with a county recorder or a similar local government body, making it a matter of public record.
If you try to sell the property, the lien must be satisfied before the sale can be completed. This generally means the debt must be paid off, potentially from the sale proceeds. Similarly, refinancing might become more complicated because most lenders require the lien to be paid off before issuing a new loan.
In extreme cases, a lien can lead to the seizure of the property. If the debt remains unpaid, the creditor could potentially force a sale of the asset to satisfy the debt. However, this is generally a last resort and requires a separate legal process.
How Does a Judgment Impact Your Credit Score?
As of 2017, the three major credit bureaus (Experian, TransUnion, and Equifax) changed their reporting practices. They no longer include tax liens and civil judgments on credit reports unless these records include specific minimum information.
Therefore, it’s less common for judgments to appear on credit reports than it once was. But it can still happen, particularly with judgments that meet the stricter reporting criteria. In other words, it’s possible to have a valid judgment or outstanding debt that does not appear on your credit report.
That said, a judgment can still impact your ability to secure new credit accounts in the future. Since judgments are public records, potential lenders might search for this information from sources other than the credit bureaus as part of the application process. If a lender finds out that a potential borrower has a judgment against them, they likely will only approve their application with the judgment being paid first.
The Emotional and Psychological Implications of a Judgment
Those facing the consequences of a monetary judgment often experience high stress and anxiety levels. The financial uncertainty and the potential loss of assets can create persistent worry. There may also be feelings of shame and embarrassment. These feelings can be exacerbated by societal stigma around debt and financial struggles.
Additionally, monetary judgments can strain personal relationships. It might create tensions between spouses, family members, or friends, particularly if the financial struggle affects others or if others are drawn into the legal process.
Given the complexities involved and the potential for significant financial consequences, it’s generally a good idea to consult with an experienced debt help attorney. An attorney can provide legal help if you are faced with a monetary judgment from a collection lawsuit or breach of contract claim. An attorney experienced with debt lawsuits can help you understand your rights, your options for handling the judgment, and any potential strategies for managing or reducing your debt.
Legal Options After Losing a Debt Collection Lawsuit
Losing a debt lawsuit can be a challenging situation. There are many consequences to having a judgment placed against you. But you still may have several legal options available to you. Again, it’s recommended that you consult with a qualified debt-help attorney to determine the best course of action.
Here are some of the potential legal options and steps you might consider:
- File an appeal. If you believe the court’s decision was incorrect, you might consider filing an appeal. An appeal is a legal process where you ask a higher court to review the lower court’s decision. Note that appeals must be based on a perceived error in the legal process or the application of law. In other words, you can’t appeal just because you don’t like the lawsuit’s outcome.
- Negotiate a debt settlement. Even after a judgment has been entered, it might still be possible to negotiate a settlement with the creditor. Agreeing to a settlement ensures they recoup at least part of the debt while avoiding the time and cost of pursuing various collection methods. A settlement may involve paying a lower amount in one lump sum or establishing a manageable payment plan for you.
- File bankruptcy. If paying the debt is not feasible because of your financial circumstances, you might consider seeing if you qualify for filing for bankruptcy. Bankruptcy can potentially discharge your debts, including judgments, but can also require you to pay back a portion of the debt. Bankruptcy comes with serious financial repercussions and should generally be seen as a last resort.
How to Prevent a Debt Collection Lawsuit
Going through the process of a debt collection lawsuit is stressful and can seriously disrupt your financial and personal life. That’s why it’s important to take steps to prevent this from happening.
- Create a budget. Develop a budget that clearly outlines all of your income and expenses. A well-planned budget can help you manage your debts more efficiently.
- Prioritize your debts. Focus on paying your debts according to their importance and interest rates. It’s generally a smart move to pay off high-interest debts first.
- Communicate with your creditors. Keep the lines of communication open with your creditors. If you cannot make a payment, contact them to explain your situation. Many creditors will be willing to work with you to find a solution.
- Seek financial and legal aid. If you are in over your head with debt, seek advice from a financial advisor or debt relief attorney to understand your options and rights.
Call Tayne Law for Help
Dealing with a judgment can be stressful, but you don’t have to go at it alone. An experienced debt-help lawyer can offer valuable legal advice, help you navigate the court process, and uphold your rights and obligations under the Fair Debt Collection Practices Act (FDCPA). Plus, they could help you identify potential legal strategies or defenses.
Tayne Law has decades of experience dealing with the debt collection industry, debt lawsuits, and debt resolution options. Call our award-winning law firm at (866) 890-7337 or fill out our short contact form for a free phone consultation. We never share or sell your information, and all discussions are confidential.
