A judgment against a debtor is the result of a lawsuit levied by one of the debtor's creditors. The judgment legally allows the creditor to perform a variety of legal actions to compel a debtor to pay an outstanding delinquent credit obligation. Occasionally, a debtor's financial situation may prohibit a creditor from executing a judgment. Selling the judgment to a collection agency allows the creditor to recoup at least a portion of the debt owed.
Credit Judgment Definition
A credit judgment is an order of a court after a creditor or collection agency sues you to recover a debt. A judgment enables a creditor to garnish your wages from working or place liens on your assets, depending on the nature of your debt. Each state also assigns a statute of limitations to the judgment, ranging from 10 to 20 years. This is the amount of time a creditor or collection agency has to act on the judgment and collect the debt in full. After the statute expires, the creditor or collection agency may bring no further legal action against you in relation to the debt, unless the state you live in allows the creditor to apply for renewal of the judgment.
Limits on Income Garnishment
Federal and state law protects certain income, including retirement pay, child support and Social Security disability payments, from garnishment to pay all debts except those related to back taxes, unpaid alimony, outstanding child support and unpaid student loans. A creditor winning a judgment against a debtor who only receives income from one of these sources will have a very difficult time forcing the debtor to pay on the judgment because her income is exempt from attachment under the law. Impatience may cause the creditor to sell the debt to another agency willing to wait the debtor out in the hopes she secures eligible employment before the statute expires.
Creditor Losing Money
A creditor selling a debt judgment to a collection agency is losing money on the initial investment. The prospect of receiving equal to or less than 50 percent of the original loan or credit line may make a creditor receptive to discussing a settlement amount with the debtor. A creditor may be willing to accept a discounted settlement proposal enabling the debtor to settle for less than he owes, while still allowing the creditor to secure a higher return than selling the debt to a collection agency would net.
Debt Settlement Consequences
Settling a judgment with a creditor or newly appointed collection agency may relieve a debtor of the obligation to pay the remainder of a debt, but it also carries several important consequences. Settling a debt for less than a debtor owes reflects negatively on her credit report, making it more difficult to secure new lines of credit and personal loans. If the forgiven debt amount exceeds $600, at the time of publication, the debtor must also claim the amount as earned income on her federal tax return.
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