A creditor can file a lawsuit against you to obtain a money judgment. A money judgment is a court award in the amount the creditor established you owed in court, plus legal fees. Once a judgment has been entered against you, the creditor can use a number of collection methods to recover the money.
Penalties and Fees
The creditor may be able to add additional interest and fees to the total judgment amount you owe, depending on your state laws. The exact percentage or fee amount the creditor is allowed to add varies by area. The extra amounts can be added once the deadline for your payment has passed, such as 30 days after the judgment was granted or a time period set by the court. More penalties continue to accrue each month the judgment remains unpaid.
Wage Garnishment
A creditor can garnish your wages to satisfy the judgment. The creditor applies in court for a garnishment order; once granted, the order is delivered to your employer, who is directed to withhold a percentage of your pay and deliver the money to the creditor. The amount a creditor is permitted to garnish depends on the laws of your state. Some states allow a debtor to file in court for relief from wage garnishment if the money taken will create a financial hardship.
Bank Account Freeze
Your bank accounts may be frozen by a creditor looking to collect on a judgment. The bank must deny you access to your funds upon receipt of the order and you may be charged bank fees. Any money in your account can be taken by the creditor to satisfy the debt; however, some funds are exempt from bank seizure by law. Social security benefits, unemployment compensation and child support payments are generally exempt from collection. You must provide proof that the money in your account came from exempt sources to the creditor if your account had exempt funds at the time of seizure. The creditor must release the exempt money to you.
Property Liens
A creditor with a judgment can file the order in the local county recorder or clerk's office to create a lien on real estate you own. The lien gives the creditor interest in your property and typically must be addressed before you can sell or mortgage your home.
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