Legal Action for Debt

If a consumer owes a debt that he cannot or will not pay, his creditor will use a variety of methods to coerce him to pay what he owes. This can include sending letters to the individual about the debt, calling him on the telephone and making derogatory reports to the credit bureaus. If the debtor still neglects to make a payment on the account, the creditor can opt to take legal action against the consumer.

Facts

A creditor can file a civil lawsuit against a debtor for the amount that she owes plus the attorney fees and court costs the creditor incurs by filing the suit. The creditor must notify the debtor of the pending legal hearing by serving the individual with a summons and complaint. Service procedures vary by state. The debtor can arrive in court with a defense or decline to appear at the hearing. Should the debtor decline to appear or defend herself but lose the case, the court will grant the creditor a judgment.

Time Frame

The amount of time a creditor has to collect a delinquent debt via a lawsuit is governed by the statute of limitations for debt collection in the debtor's state of residence. The statute of limitations goes into effect 180 days from the day the individual made his last payment on the debt. Depending on the type of debt the individual owes and where he lives, the statute of limitations can range from two years to 15 years. Although an expired statute of limitations doesn't stop a creditor from filing a lawsuit, it can result in the lawsuit being dismissed if the debtor uses the expired statute as a defense in court.

Effects

Should the creditor win its lawsuit and become a judgment creditor, it gains the right in some states to force the debtor to pay what she owes involuntarily. A creditor can use the judgment to obtain a wage garnishment order or bank levy against the individual. This allows the creditor to demand a portion of the debtor's wages from her paychecks or seize funds directly from her checking account. A creditor also can place a real estate lien against the individual's home. The consumer must pay off the debt to remove the lien before she can gain a clear property title to sell or transfer the property.

Considerations

Not all states allow creditors to use legal force to collect a debt from consumers. States such as Pennsylvania and South Carolina, for example, only permit wage garnishment to be levied against individuals for debts they owe to the government. Creditors in these states still have the right to file a civil lawsuit against debtors, but have limited means of enforcing a successful judgment.

Warning

Each state has different guidelines for how defendants of a lawsuit must be notified of the impending hearing. If proper notification guidelines are not followed, the debtor can contest any resulting judgment against him and might be successful at having it vacated. Unethical debt collectors have been known to intentionally fail to properly notify individuals of a lawsuit with the goal of obtaining a default judgment when the debtor does not appear in court. This gives the creditor the ability to legally enforce the debt without granting the debtor an opportunity to defend himself.