What Happens When a Court Issues a Judgment Against You?
Before a person or a company to whom you owe money can win a judgment against you, they must first file a lawsuit in court. If you ignore the lawsuit, the court will enter an automatic judgment against you, known as a default judgment. Of course, even if you file an answer to the lawsuit, you can still lose the case.
What Happens After the Judgment Is Entered?
A judgment can turn an otherwise uncollectible old credit account into a collectible amount of money. For instance, a statute of limitations may prevent a creditor from collecting funds you owe him, after a set number of years. But that same creditor may initiate a lawsuit against you, hoping that you'll ignore it, thus allowing him to receive a default judgment against you. But had you shown up in court, the statute of limitations would have guaranteed your win. Your failure to show up to court is known as an "affirmative defense."
A judgment is good for 10 or more years.
Depending on your state, a judgment remains valid for 10 or more years. That's a long time for a debt to follow you around. Furthermore, judgments show up on credit reports and may appear on background checks until the judgments expire.
How the Creditor Can Use the Judgment.
Under state law, a judgment is a lien on property, which opens up a host of possibilities for creditors. If your state allows it, the judgment can file a levy with the court and your employer, instructing the employer to garnish a portion of your wages, to pay the creditor with. Garnishments may also target bank accounts. However, pension benefits, Social Security, and disability payments, and unemployment and worker's comp benefits cannot be levied or garnished for debt—with the exception child support and alimony obligations.
Your creditor can present the judgment against you to a sheriff, instructing him to seize and sell your property, to pay off judgments. This action, called "an execution of a levy," can be extremely unnerving. Imagine a deputy knocking on your door with that piece of paper, entitling him to take your plasma TV or drive off in your car.
In some states, creditors can force the sale of your home. At the very least, the judgment appears in your county's property records, so when you sell or refinance your property, the title insurer will require that the judgment be paid in full from the proceeds.
How Can I Avoid a Judgment?
Judgments can disrupt your finances and your job, and they can prevent you from obtaining insurance, renting an apartment or gaining security clearances. Therefore it is well worth the effort it takes to defend lawsuits filed against you.