What Happens When a Court Issues a Judgment Against You?
And, how can it hurt me?
In the realm of lawsuits on debts, a judgment is essentially a stamp of approval by a judge that says you owe someone money.
How does someone get a judgment?
Before someone can get a judgment against you, that person (or company) would have to file a lawsuit. It can be quite jarring to learn that someone has filed a lawsuit. Some people don't understand the papers they've been served, Others essentially put their heads in the sand and ignore the lawsuit. Some do the smart thing and call an attorney who represents folks being sued over debt matters.
If instead of talking with an attorney you choose to ignore the lawsuit, the court will enter a judgment against you. These are often called default judgments.
To learn more about what happens before a lawsuit, read Timeline of a Consumer Debt Lawsuit: Before the Lawsuit is Filed.
To learn more about what happens during a lawsuit, read Timeline of a Consumer Debt Lawsuit: Pretrial and Trial.
When You File an Answer to the Suit
If you file an answer to the lawsuit, the court will not allow the plaintiff (the person who files the lawsuit against you. You're the defendant) to take a default judgment.
Even if you file an answer to the lawsuit, you could still lose the case, causing the court to enter a judgment against you. Here's a copy of a judgment for a plaintiff who won a case and was awarded a sum of money.
What happens after the judgment is entered?
Having an unpaid debt on your record is not a good thing. Having a judgment on your record is worse.
A judgment turns an old account into a new debt.
A judgment can turn an otherwise uncollectible old credit account into a very collectible amount of money. For instance, say you have an old store credit account that you haven't used or paid on in five years. Your state has a law, called the statute of limitations, that states that a creditor can't enforce an account older than four years. But there's nothing that prohibits the creditor from bringing a lawsuit. That's because the creditor is taking the chance that you will not defend the suit and bring the statute of limitations to the notice of a judge.
That's called bringing an "affirmative defense." If you don't file an answer to the suit, the judge will likely rubber stamp the lawsuit and enter the judgment just because you failed to put up a defense.
A judgment is good for ten or more years.
Depending on your state, a judgment remains good for ten years or more. Here in the state of Texas, most money judgments last ten years. What's more, at the end of that ten years, they can be renewed for another ten years. That's a long time for a debt to follow you around.
And, the judgment will follow you around. It remains on your credit report and often on background checks until it expires. Twenty years is a long time. It can even be registered in other states if you move.
Check out this article for information about judgments in your state: Judgment Liens on Property in Your State.
How the Creditor Can Use the Judgment.
Under state law, a judgment is a lien on property. A lien is a security interest, not unlike the security interest your car creditor has in your car or the bank has in your property when you have a mortgage. The judgment lien, or security interest, attaches to all of your property. Because the judgment is a lien on property, the judgment opens up a host of possibilities for a creditor. Two the most useful are garnishment and levy.
If your state allows it, the judgment creditor can file a levy with the court and your employer. The levy instructs the employer to withhold a certain amount from your wages and pay it over to the creditor.
The creditor isn't limited to garnishing wages. Bank accounts are common targets. Generally, however, pension benefits, social security and disability payments, unemployment and worker's comp benefits cannot be levied or garnished for debt other than child support and alimony, unless those benefits are deposited into a bank account.
In many cases you can defend against a garnishment. Check out How to Handle a Garnishment.
Levy of Property
Your creditor can take that judgment to a state official like a sheriff and request that the sheriff seize and sell some of your property to pay off the judgment. This is called "execution of a levy". You will feel mighty uncomfortable when a deputy knocks on your door with that piece of paper asking to see your plasma TV or the keys to your car.
In some states, the creditor can even force the sale of your home or other real estate. At the very least, the judgment appears in the property records of your county. When you go to sell to or refinance the property, the title insurer will require that the judgment be paid in full from the proceeds.
Learn more about how creditors collect judgments at Timeline of a Consumer Debt Lawsuit: Collecting the Judgment.
How can I avoid a Judgment?
Judgments are not to be trifled with. They can wreak havoc with your financial life, your job, even prevent you from getting insurance, renting an apartment or getting a security clearance. Consider defending the lawsuit. It might be easier and cheaper than you think. Check out this article to learn more about defending credit card lawsuit: Is it Worth It to Defend a Credit Card Lawsuit?