State Court Judgments Pose a Threat to Your Financial Future

By: Jonathan Ginsberg
Submitted: 2007-01-17 16:17:36
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Nobody likes to receive collection phone calls from bill collectors. If your finances are not in good shape, there is a good chance that you receive a lot of calls from one or more telephone collectors. Collection agents are not necessarily bad people - most are just doing a job. A few seem to get a perverse joy in yelling and threatening, but for the most part, collectors follow a script.

After a few days or weeks of fielding collection phone calls, you may not give much thought to the phone calls. Many people change their phone numbers, use an answering machine or simply hang up - all of which are reasonable strategies.

You should be aware that the collection agencies will respond to your non-responsive actions. Once a bill collector reports back to his supervisor that you are not responsive to collection efforts, there is a good chance that your account will be turned over to the legal department for legal action.

In my Atlanta bankruptcy practice, I interact with collection lawyers on a regular basis. Law firms that specialize in collection operate as paralegal driven volume practices. Often the owner of the law firm also owns the collection agency so there is no real cost to turn an account over to the legal department. The collection agency owner/lawyer most likely purchased your account along with hundreds of others for a substantial discount. For example, a retail store’s credit card division might sell accounts that are 90 days past due for 30 cents on the dollar. If the collection lawyer can recover 60 cents on the dollar, he will double his money.

Collection law firms often file dozens of lawsuits per month. In most cases, the defendant - i.e., the person who owes the money - will not respond, either because he does not know how or because he has no basis to oppose the lawsuit. If you do not respond to a lawsuit within a certain period of time (typically 20 to 30 days after being served), the creditor’s lawyer has the right to ask for a default judgment. He need only file a one or two page pleading stating that you have not responded to the lawsuit as set forth in the law and therefore the plaintiff is entitled to a default judgment. The state court judge will then issue an official court order that creates a judgment against you.

A judgment has the potential to cause a great deal of trouble for you. Firstly a judgment is a secured debt, meaning that any of your personal property, including future wages, may be seized to satisfy the judgment. Secondly a judgment operates as a lien against any real property that you own, meaning that when you try to sell your house, any outstanding judgment will cloud your title. Third, a judgment functions as a negative mark on your credit. A judgment will seriously affect your credit score since it reflects indebtedness that ended up in a court proceeding.

Finally, most judgments will continue to accrue interest - I have seen situations where an unpaid judgment accrued several thousand dollars of interest over a period of years. When the debtor decided to sell his house, he was unhappy to learn that the old, unpaid credit card bill judgment of $6,000 that he had ignored over the years had ballooned to a $20,000 lien that he had to pay at closing.

Judgment creditors have the right to satisfy their liens by garnishing your wages or by seizing the funds in your bank account. If you ignore a lawsuit, the case against you goes into default and a judgment issues, you may first learn that you have a big problem when your next paycheck is reduced by a large garnishment deduction, or when your rent check bounces because all the money in your checking account has been grabbed by the judgment creditor.

If a sheriff’s deputy or process server arrives at your door, you should immediately seek legal counsel. Bankruptcy may be an appropriate consideration to eliminate the debtor to pay it back over time. Negotiated settlements, sometimes at a discount, may also be available. Ignoring a lawsuit or ignoring the issuance of a judgment is never a good idea and will result in serious, long standing problems.

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