Judgments for Credit Card Debts - The Perils Of Legal Action
We all know that not making your credit card payments can damage your credit history, making it difficult to get credit, or even a job, in the future. However, if you continue to avoid your creditors, a judgment for credit card debt can be issued against you, making a bad situation even worse.
The real trouble begins when a creditor or collection agency files a suit against you for debt you owe. If you do not respond to the suit within a legally prescribed time (usually 20-30 days), a default judgment can be entered against you. At this point, the creditor moves from an "unsecured" status to a "secured" status, giving the creditor additional rights to recover the debt from you.
Garnishment and Liens
In some states, such as New York, a secured creditor can legally garnish your wages or freeze your bank accounts (except for certain deposits such as disability payments) to recover the amount of the judgment. Each state limits how much of your income can be garnished; however, this limit can be 25% or more of your net income. A secured creditor can also place a lien against real estate you own, so it cannot be sold until the debt is paid.
No Room for Negotiation
The second major problem with receiving a judgment for credit card debt is that you lose all ability to negotiate with the creditor for payment terms you can handle. A creditor will often work with you to find a workable payment solution; however, once a judgment is entered, you're stuck with the payments decided upon by the court.
An Even Lower Credit Score
Finally, paying your bills late will ding your credit, but a judgment for credit card debt will wreak serious havoc on your credit score. This will slow your financial recovery, because your ability to rebuild your credit will be significantly limited for seven years or more.
The real trouble begins when a creditor or collection agency files a suit against you for debt you owe. If you do not respond to the suit within a legally prescribed time (usually 20-30 days), a default judgment can be entered against you. At this point, the creditor moves from an "unsecured" status to a "secured" status, giving the creditor additional rights to recover the debt from you.
Garnishment and Liens
In some states, such as New York, a secured creditor can legally garnish your wages or freeze your bank accounts (except for certain deposits such as disability payments) to recover the amount of the judgment. Each state limits how much of your income can be garnished; however, this limit can be 25% or more of your net income. A secured creditor can also place a lien against real estate you own, so it cannot be sold until the debt is paid.
No Room for Negotiation
The second major problem with receiving a judgment for credit card debt is that you lose all ability to negotiate with the creditor for payment terms you can handle. A creditor will often work with you to find a workable payment solution; however, once a judgment is entered, you're stuck with the payments decided upon by the court.
An Even Lower Credit Score
Finally, paying your bills late will ding your credit, but a judgment for credit card debt will wreak serious havoc on your credit score. This will slow your financial recovery, because your ability to rebuild your credit will be significantly limited for seven years or more.
Source...