Collection agencies are relentless in their attempts to collect on an unpaid debt. You can ignore their calls and letters, but eventually, the collection agency may file a lawsuit and seek a judgment from the court. A judgment orders you to pay a debt, and sometimes, a collection agency can acquire a default judgment against you.
What is a Default Judgment?
The court notifies you of an upcoming court date if a collection agency files a lawsuit against you. You have the option of attending this court hearing to dispute the debt before a judge. However, if you do show or send your attorney to court on the day of the hearing, the judge has no choice but to rule in favor of the collection agency. The agency wins by default, and the judge issues a default judgment against you.
Consequences of a Default Judgment
Credit bureaus are notified of a default judgment, and with a judgment on your credit report, your FICO credit score can take a nosedive. Judgments also can complicate future loan and credit card applications. Lenders and creditors can pull your credit report, take note of the default judgment and deny your application. Judgments stay on your credit report for seven years.
Appealing the Judgment
You can take steps to remove a default judgment from your personal record. If you do not owe the money, and you can prove this to a judge, go to your local courthouse and file a petition to vacate or appeal the judgment against you. This appeal erases the original judgment and gives you another opportunity to state your case before a judge. Prepare for your hearing date by gathering evidence as to why you don't owe the money. You can bring copies of written contracts or canceled checks to show the judge. If you win, the bureaus remove the default judgment from your record.
Satisfying the Judgment
Many creditors will not remove a judgment from your credit report. But if you pay the balance owed, creditors will submit a judgment satisfaction letter to the courts and then notify the bureaus. Once the bureaus receive confirmation that you have paid a judgment, they'll update your personal file and change the status of the judgment to "paid." The original judgment will stay on your report for seven years, but future creditors and lenders will see that you paid or satisfied the judgment, which can help your approval chances.
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