Wednesday, June 1, 2005

What Happens When a Credit Debt Judgment Happens?

What Happens When a Credit Debt Judgment Happens?

Credit cards provide a rapid and convenient way for consumers to make purchases. Unfortunately, that same speed and convenience makes overspending more likely. If an individual fails to keep close track of his credit card spending, his debt can quickly swell out of control--leaving him to default on credit card payments he cannot keep up with. Defaulting on credit cards is often the precursor to a damaging judgment.

Facts

    A credit card falls into "default" as soon as the debtor misses a payment or any time within the following 60 days, depending on the credit card issuer. A credit card company can opt to hold on to defaulted accounts and pursue the debtor for payment or sell the accounts to a collection agency. Regardless of whether the creditor sells the account or continues to try to collect the debt, the owner of the account has the right to file a lawsuit against the debtor for the full amount she owes on her credit card. If the creditor wins the lawsuit, the court awards it a judgment for the amount of the debt.

Time Frame

    Suing a debtor for unpaid credit debt is only a viable option if the debt is still within the statute of limitations for debt collection in the debtor's state. The statute of limitations ranges from two to 15 years, depending on the state, and regulates how long a creditor has to seek legal recourse against a consumer for a unpaid debt. An expired statute of limitations often doesn't stop a creditor from filing a lawsuit, since courts do not verify the debt collection statute for each debt. Should the consumer bring the statute of limitations and the age of the debt to the court's attention, however, the judge has no choice but to dismiss the lawsuit.

Effects

    Once a creditor wins a judgment against a debtor for credit debt, it can attempt to collect the debt a variety of ways. It usually requests that the court issue a writ of execution for garnishment. The creditor may garnish the debtor's wages or his bank accounts. The Consumer Credit Protection Act allows judgment creditors to garnish up to 25 percent of the consumer's disposable income or the amount the debtor's weekly earnings exceed the federal minimum wage by 30 times. After a credit card judgment, the creditor can even file a property lien against the debtor's home--forcing him to pay off the judgment before seeing any proceeds from his home's sale.

Significance

    Once the court issues a credit judgment, the judgment becomes a matter of public record. That public record can then be reported to the credit bureaus and show up on the debtor's credit report. Since a judgment is a derogatory credit entry, the consumer's credit score drops as soon as it appears within his credit record. The Fair Credit Reporting Act only allows the credit bureaus to report judgments for seven years. After seven years, a judgment disappears from a consumer's credit report and no longer negatively affects his credit score.

Considerations

    A judgment cannot always be enforced. Although judgment creditors may garnish wages and bank accounts, they cannot seize exempt funds from the debtor. Exempt funds include any money paid to the individual by the federal government, such as Social Security, unemployment or public assistance. Child support and alimony checks are also immune from seizure after a judgment. The debtor can notify his bank of exempt funds within his bank account to prevent them from being remitted to a judgment creditor after a lawsuit.

0 comments:

Post a Comment