If you fail to repay a debt you owe, and you do not attempt to work with the creditor, the creditor may choose to sue you in civil court to obtain a judgment against you for your debt. Once a creditor has obtained a judgment, most states permit the creditor to execute a wage garnishment order, which forces your employer to withhold a portion of your wages for repayment of the judgment debt. However, in certain cases, you may be able to settle with the creditor to end wage garnishment.
Definition
A settlement is an agreement between you and the creditor to consider a debt paid in full without paying the full balance of the debt. In a settlement, you agree to pay a portion of the debt, typically in a lump sum. Once the creditor receives the payment, it ceases collection activity, which may include garnishment of your wages. It also reports the debt as paid to the court that issued the judgment.
Benefits to Creditor
A creditor with an active wage garnishment order may be less willing to settle a debt than a creditor that has not yet sought a civil judgment against you. This is because the creditor has already incurred expenses such as court costs, hiring an attorney to handle the judgment lawsuit and obtaining a writ of garnishment. However, settling a judgment debt may help the creditor avoid ongoing garnishment costs, such as periodically refiling a garnishment order to keep the garnishment active. It also allows the creditor to receive a lump sum instead of having to collect against the judgment over time.
Settling a Judgment
You can attempt to settle a judgment and end wage garnishment by contacting the creditor or the attorney who represents the creditor. If you can provide a lump sum immediately, the creditor may be more willing to accept a settlement. The higher the percentage of your debt you can pay in a lump sum, the better your chances of successfully negotiating a settlement.
Considerations
If you successfully negotiate settlement of a judgment debt to end wage garnishment, ask the creditor to provide the agreement and receipt of the settlement payment in writing. This will provide evidence of the settlement if you have to request a court hearing to end the garnishment. Also, if you settle a judgment debt for more than $600 less than the full balance, you will have to pay taxes on the forgiven amount as earned income.
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