What Is a Credit Judgment?

Some consumers get into financial trouble and are unable to repay their debts. When debts go unpaid for any significant time, the creditor often chooses to take the debtor to court. If a court rules in favor of the creditor, it issues a judgment, awards damages and gives the creditor the right to collect the money from the debtor. Only a court of law can issue a judgment

Time Frame

Credit judgments typically occur when a debtor has fallen so far behind on his debt that the creditor believes the only way to get the money back is to file a lawsuit. For example, if you fail to pay your credit card statement for many months, the credit card company may file a lawsuit against you to try to get a judgment. In the meantime, the credit card company can still contact you to try to convince you to pay or hire a collection agency to do the same on behalf of the creditor. However, the company cannot garnish your wages or take your property unless you have entered into a secured debt agreement in which the creditor took a security interest in your property, such as a mortgage.

Process

Before a creditor receives a credit judgment, the creditor must sue the debtor. Like all other lawsuits, the creditor must file the lawsuit in an appropriate court and notify the debtor that the suit has been filed. The debtor has the opportunity to appear in court to defend against the claim. Further, the debtor and the creditor can come to an agreement between themselves and settle the case without a court entering a judgment on the case. If the parties cannot come to an agreement, the court will decide the case and issue a judgment.

Effects

A credit judgment can have numerous effects. The creditor can report the judgment to the consumer credit bureaus, negatively affecting the debtor's credit score. The judgment will then stay on the consumer's credit report for at least seven years, according to the Federal Trade Commission. Once a creditor receives a judgment, the creditor can try to collect the money owed. Each state has different laws for how this can be accomplished, but property liens and wage garnishments are two common methods.

Limitations

Credit judgments are subject to state statutes of limitations, laws that limit the time a creditor has to collect on the court's judgment. The amount varies greatly from state to state, from three years to an unlimited amount of time, according to the webstie Card Report. Also, the state law that applies to this time limit can vary depending on the terms under which the debtor entered into the credit agreement. Credit agreements can have clauses in them that determine which state's laws apply to the debt.