Knowing what to expect after being sued by a creditor is tricky because creditors employ various collection methods. Creditors may take you to court after a number of months of missed payments. Court hearings can encourage payment of a debt. But some debtors disregard lawsuits and leave accounts in default status. Some creditors will take extra measures to recover funds.
Effects of a Lawsuit
A judge can't make you write a check to pay off an overdue balance on the hearing day. However, a judge can find you liable for the balance and put a judgment on your credit report. Judgments are unfavorable remarks that leave a major blemish on credit reports. This update will remain on your credit for seven years; and until the judgment matures and vanishes from the report, you may experience higher interest rates on loans and possible credit rejections.
Bank Garnishment
Being sued and losing a lawsuit doesn't conclude problems with your creditor. Creditors will expect a payment once a judge makes a verdict; and if you ignore the judge's order and continue to dodge the creditor, your creditor can go after your personal funds in the bank and levy your account to a zero balance. Bank garnishments, liens or levies involve a creditor taking hold of your account. This happens after the creditor notifies the court of your unwillingness to pay your balance. With prior permission from the court, your creditor can contact your bank and take funds from your account to satisfy the debt.
Wage Garnishment
Creditors can also use the method of wage garnishment to collect on unpaid judgments. Again, this process occurs after you fail to satisfy a judgment order and the creditor updates the court on your payment status. If a creditor decides to garnish your wages, your employer must subtract up to 25 percent of your pay from each paycheck until you've fulfilled your obligation to the creditor. Losing 25 percent of earnings, in addition to state, federal and other withholdings can affect your personal finances and leave little disposable income.
Considerations
You can escape continuing issues with creditors by addressing past due balances and judgments before the lender acts. Paying the judgment in full is one way to quickly rectify problems. But even if your situation doesn't allow complete repayment, set up a plan that allows you to make installment payments for a certain number of weeks or months. An effort to remedy unpaid bills can alleviate wage garnishments and bank garnishments.
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