Creditors want you to pay funds owed to them. However, some creditors are willing to negotiate, and if you experience economic hardship, they'll work with you and delay filing a lawsuit to recover funds. But if you ignore creditors or disregard the debt, you're likely to get hit with a lawsuit.
Consequences of a Lawsuit
Creditors can provide a courtroom judge with proof that you owe money, and regardless of the reason for defaulting on the loan or credit card bill, the judge will order you to pay the funds or place a judgment on your credit record. Judgements harm your personal credit history for seven years and lower your credit score. The consequences of a charge-off and credit judgment include credit rejections and higher interest rates.
Length of Time Before Lawsuit
The length of time before a creditor files a lawsuit against you varies. The majority of creditors have their own in-house collection department; and according to Bankrate.com, creditors tend to review past-due accounts after 60 days. Creditors may pursue a lawsuit after this time to collect funds owed, or hire a collection agency to handle the delinquent debt. Regardless of the method chosen, past-due accounts sent to collections are reported on your credit report, and this information hurts your FICO score.
Avoiding Creditor Lawsuits
The key to avoiding a creditor lawsuit and possibly saving your personal credit score is constant communication with your creditors. Talk with creditors long before they threaten collections or a lawsuit. Inquire about assistance to help those experiencing economic hardship. For example, upon awareness of your situation, your creditor may significantly reduce your monthly payment or start a forbearance period that lets you skip a few payments.
Another Alternative
Consider bankruptcy only as a last resort to avoid creditor lawsuits. Bankruptcy filings devastate your credit history. But if you can't pay your bills because debts exceed your assets, filing for bankruptcy protection can possibly get your debts erased and eliminate any pending lawsuits. Talk to a bankruptcy attorney to discuss your situation and to see if bankruptcy is the right move for you. Ask about the statue of limitations for being sued for a past debt. The limit varies depending on the state. After filing your case, creditors and collections agencies are required by law to stop collection attempts.
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