What Happens to Your Credit Score When You Get Sued in Circuit Court?

If you do not pay a debt, your creditor will typically respond by sending you letters and calling you to compel you to bring your account current. However, if you avoid your creditor or refuse to negotiate a repayment arrangement, the creditor may sue you for the debt. Most debt lawsuits are handled by county municipal or magistrate courts. However, if the debt meets a certain monetary threshold as determined by state law, the creditor may file the lawsuit in civil court in some states. A debt lawsuit filed in circuit court can severely damage your credit.

Lawsuit Process

If the creditor determines that you do not intend to repay your debt voluntarily, it will typically hire an attorney to file a civil suit against you. You will receive a summons notifying you of the lawsuit and giving you an opportunity to defend yourself against the suit. In some states, you may answer the summons in writing; in other states, you must appear at a court hearing. If you do not respond or cannot raise a valid defense, such as providing evidence showing that you paid the debt, the court will issue a judgment against you.

Credit Damage

After a circuit court awards a judgment against you for a debt, the judgment becomes public record, which means that anyone, including credit bureau employees, can access information about the judgment. Credit bureaus frequently review court records and add judgment information to credit reports. Depending on your credit score before the judgment entry, a judgment can lower your score between 50 and 100 points.

Indirect Credit Effects

Once a creditor has obtained a judgment against you for a debt, it may use several strategies to collect the debt. In all states except South Carolina, North Carolina, Texas and Pennsylvania, private creditors can garnish a portion of your earnings. Federal law permits judgment creditors to take up to 25 percent of your wages, although some states place additional restrictions on wage garnishment. Creditors may also seize assets in your bank accounts and use them to pay your judgment debt. These practices reduce the money you have available to pay other creditors, which can cause you to fall behind on other debts and incur additional negative credit entries.

Considerations

You can typically prevent being sued for a debt in circuit court by staying in contact with your creditor. Even if you have fallen behind on your debt payments, your creditor will likely work with you to find a solution that meets your needs. Creditors know that judgments are expensive and can be difficult to collect, so they typically exhaust all other collection efforts before resorting to this strategy.