What if I Can’t Afford To Pay a Judgment Against Me?

What Does It Mean To Default on a Debt?

Not making a payment by its due date is considered a default. If you're struggling to keep up with your monthly payments on your credit card debt and medical bills, and you end up defaulting, several things will happen as your account goes into collections.

First, your default interest rate will take effect, and the lender may charge you fees for defaulting. They’ll report the missed payment to the credit bureaus, which will cause your credit score to drop. Eventually, creditors usually end up hiring a collection agency to continue the debt collection efforts.  

What Do Debt Collectors Do?

Collection agencies are not the only type of debt collectors you may encounter. While the collection agency works for the creditor, other debt collectors work for themselves. After a certain period of non-payment, banks and lenders routinely sell their claims to debt collectors. 

Either way, if they’re not the original lender, they're subject to the Fair Debt Collection Practices Act (FDCPA), a federal law that applies to third-party debt collectors. While there’s nothing to prevent collection agencies from being annoying, the FDCPA doesn't allow them to harass debtors or be abusive. 

How Do You Deal With a Debt Collection Lawsuit?

After some time—how long depends on each lender’s internal policies—the creditor will hire a law firm to file a debt collection lawsuit against you. At this point, the party suing you becomes the plaintiff. They have to notify you that you're being sued. Most states require that is done by having a process server deliver the summons and complaint to you. 

You’ll have a certain amount of time to respond to the lawsuit. How long you have depends on state law and the type of court the case is filed in. Many debt collection lawsuits are filed in small claims court. If you don’t respond to the lawsuit by filing an answer within the time given, the creditor will ask the court to enter a default judgment against you. 

A default judgment is a legal forfeiture, the same way your favorite football team forfeits a game if they don’t participate. The game is automatically lost if they don't show up. The same applies to you if you don't respond in time to your lawsuit summons and complaint. Of course, this kind of forfeiture can lead to a wage garnishment, so the stakes are much higher for you. 

What Does It Mean To Answer a Creditor’s Complaint?

You respond to a lawsuit by filing a legal pleading called an answer. In it, you respond to each one of the creditor’s allegations and let the court know what kind of defenses you may have. You may be able to pick up a blank answer from the court clerk, but they won’t be able to provide any legal advice on how to fill it out. 

How Do You Defend Yourself Against a Creditor’s Complaint?

The answer will give you the chance to tell your side of the story and present the court with reasons for denying the creditor’s request for a money judgment. Some defenses are substantive. For example, you’ve paid off the debt or you can show it’s not your debt in the first place. Other defenses related to inaccuracies with the debt itself or the debt collector not following legal procedures properly.

If the debt collector filed the lawsuit after the statute of limitations expired, now is your time to tell the court. If you don’t think you owe the debt or that the statute of limitations has run, it may be a good idea to seek legal help, either by meeting with a private attorney or by speaking to a legal aid organization. 

How Do Creditors Collect on a Judgment?

Once a creditor has a judgment, there are three primary ways to try to collect the judgment amount:

• They can garnish your wages

• They can levy your bank account

• They can put a lien on your real property

What Is Wage Garnishment?

Judgment creditors can use wage garnishment to receive a portion of your earnings each paycheck. Exemptions limit the amount the creditor can take. Some states like Florida, Idaho, Oklahoma, Maryland, Ohio, and Utah follow federal wage garnishment limits to determine what is considered exempt income. Other states offer similar exemptions to judgment debtors but add more protections. 

Alaska, Connecticut, California, District of Columbia, New Hampshire, North Dakota, New Mexico, and Oregon allow garnishment of wages above 75% of the judgment debtor’s disposable earnings or 40 to 50 times the federal minimum wage, whichever is greater. 

Massachusetts, West Virginia, and Wisconsin protect 80-85% of the judgment debtor’s disposable income.  In Texas, Pennsylvania, North Carolina, and South Carolina wage garnishment is prohibited. 

What Is a Bank Account Levy?

A levy is a legal process that permits a creditor to take money out of a judgment debtor’s bank account. There is no federal limit as to how much they can levy; state law determines how much a creditor can take with a bank levy. 

What Is a Property Lien?

A judgment creditor may also put a lien on all your property, both personal and real. If you own your own home, that is an example of "real property." If a creditor records a certificate of judgment in the county records office, it can create a judgment lien. 

If you try to sell the property, you may have to pay off the judgment lien before receiving any of the sale proceeds. The homestead exemption in your state impacts just what this would look like for you. 

Even judgment creditors can only reach non-exempt property, so it doesn’t often happen that they seize personal property.

What Does It Mean To Be Judgment Proof?

It means that even if a creditor has a judgment, they can’t take anything from you because everything you own is exempt. If your only income is in the form of Social Security benefits, you don’t own any real estate, and you don’t have any expensive personal property, you’re most likely judgment proof. 

Even though the creditor can't collect their money from you, they can still try to demand payment, which can be irritating to deal with regularly. 

There Is a Judgment and I Can’t Pay – Now What?

There are three things you can try to do to deal with a judgement if you can't pay:

1. Try to negotiate a voluntary payment plan with the creditor

2. File to have the judgment vacated

3. File bankruptcy to discharge the debt

Ask the Creditor for a Voluntary Payment Plan

The first thing to try after a judgment has been entered is to see if the judgment creditor is willing to let you do a voluntary payment plan to pay off the judgment. If they agree, this will help you avoid wage garnishment or a bank account levy. 

Keep in mind that a judgment gives the debt collector additional tools to collect money from you. Since these tools come with a court order, some judgment creditors are hesitant to agree to a voluntary payment arrangement. After all, they just paid a bunch of attorney fees to sue you and get access to these additional tools.

File To Vacate (Cancel) the Judgment

In some cases, you it may be possible to have the court cancel or set aside the judgement against you. Here's a quick primer on how to file to vacate a judgement:

1. Research the Laws in Your Area

Start by familiarizing yourself with the laws and regulations governing this process in your jurisdiction (where you live). Each location may have specific requirements and procedures to follow. You can ask the court clerk to point you in the right direction or explain the process. They can't get you legal advice, but they can explain how the process works and what requirements you need to follow.

2. Gather Supporting Evidence

To strengthen your case, gather relevant evidence and documentation. This includes any new evidence that could alter the outcome of the case, proof of errors or mistakes, evidence of fraud or misconduct, or documents related to a settlement or agreement. Having substantial evidence will support your request for the judgment to be cancelled.

3. Prepare and File a Motion

Draft a formal written motion or application addressed to the court seeking the vacation of the judgment. Sometimes the court will have a template you can use. Search your local court's website or talk to the court clerk. Clearly state the grounds on which you are requesting the judgment to be set aside and provide a detailed explanation. Attach the supporting evidence. Ensure that your motion adheres to your local court's formatting and filing requirements.

4. Serve the Other Party

Serve (deliver) the opposing party or parties involved in the case with a copy of your motion or application. Serving them properly ensures that they are aware of the legal proceedings and have an opportunity to respond.

5. Attend the Court Hearing

Appear at the scheduled court hearing for your motion. Present your arguments, evidence, and supporting documents to the judge in a clear and organized manner. Articulate the reasons why the judgment should be vacated and address any counterarguments that the opposing party may present. The judge will carefully evaluate your request and make a decision accordingly.

File Bankruptcy To Deal With the Judgment

The ultimate defense to post-judgment collections is bankruptcy. As soon as you file for bankruptcy protection, the automatic stay goes into effect. The automatic stay stops all debt collection activity (including wage garnishments, bank account levies, the recording of liens, and pending lawsuits). 

The bankruptcy discharge is a court order that eliminates your obligation on all of your dischargeable debts, like medical bills, credit card debt, and similar unsecured debt. If any creditors for these types of debt obtained a judgment against you, they wouldn’t be able to collect on the judgment anymore.  Tax debts and court-ordered child support obligations are examples of the types of debt that are not always eliminated by a bankruptcy filing. 

If Possible, File Bankruptcy Before a Judgment Is Entered. Here's why...

If you know that a bankruptcy filing is inevitable, it’s likely best to file it before a judgment is entered. Although a bankruptcy renders the judgment unenforceable, it won’t erase it from existence. Public records and your credit report will continue to show the judgment.  Additionally, if the judgment creditor records the judgment it may act as a lien on your real estate. 

Let’s Summarize…

Once a creditor gets a money judgment, they’ll be able to garnish your wages, levy your bank account, and even seize non-exempt property in an attempt to pay off the judgment. If you’re judgment-proof, state or federal law prohibits the judgment creditor from taking any of your income or property. If you’re working and can’t afford to have your wages garnished, filing bankruptcy will eliminate both the debt and the judgment.