- Ignoring creditors could lead to a default judgment giving creditors additional ways to force payment.
- A default judgment could lead to wage garnishment, property liens, and bank levies.
- Creditors prefer to settle an account because legal action is the most expensive route and presents the longest time for repayment.
- Filing a lawsuit is one avenue creditors use to force you to negotiate a payment that will settle the debt.
- A debt settlement company can communicate with a creditor on your behalf and avoid legal action altogether.
Nobody likes dealing with creditors and debt collectors trying to recover past due balances. The process starts off cordial, but an inability (or unwillingness) to pay the balance in full can lead to more aggressive actions by collectors, including the threat of litigation. However, this happens much less frequently than you might expect. Debt collection through litigation is an expensive and time-consuming effort for creditors and keeping open lines of communication with your creditors directly or through a debt negotiator, can help you avoid litigation or a default judgment altogether.
Here are a few tips to help you better understand the process and avoid a default judgment,
Creditors Do Not Want to Sue You
Creditors would almost always rather negotiate the debt than sue because litigation presents the highest cost and the longest time to recover the debt.
Lawsuits are the most expensive route in debt collection. The company must incur attorney and court costs, and then force collection through wage garnishments, levies, or liens. Creditors would much rather accept payment arrangements, even if it means receiving significantly less than the full balance owed on the account.
The Default Judgment
When a creditor sues for repayment, the debt owner receives a default judgment over 90% of the time, because many borrowers fail to answer the court summons. After judgment, the account balance increases to include court costs, attorney fees, and now accruing interest on the existing balance. When a creditor wins in court, the company gains additional legal remedies to collect the debt.
The three most common means of recovering the debt include:
- Wage Garnishments
- Levy Assets
- Property liens
Wage garnishments allow a creditor to receive payments from your employer. The federal law restricts wage garnishments to a certain percentage of your pay, granting you a minimum of at least 30 times the minimum wage, which only protects $217.50 per week of wages.
Levy assets can include any un-exempt assets such as bank accounts or investments outside of retirement accounts. They cannot levy certain payments such as Social Security, disability, or veteran benefits. Joint accounts are not protected, and the creditor can take 100% of the account balance.
Property liens essentially create a secure judgment on unsecured debt. Property lien laws vary by state, but often last for 10 years with the ability to renew the judgment. If you sell or refinance the property, the proceeds pay the lien in full.
How to Avoid a Default Judgment
The best way to avoid a default judgment is to communicate with debt collection agencies and creditors and face the issue head-on. This process can be intimidating and emotional, so partnering with a professional debt negotiation company may help you navigate the process and get a better settlement in the end.
When you partner with debt settlement professionals that can effectively negotiate on your behalf, you may be able to avoid litigation and resolve the account in a way that is mutually beneficial to both you and the creditor.
Payment arrangements for less than the full balance can many times eliminate debt in four years or less depending on how much you owe and the amount you contribute each month to your debt settlement savings plan.
Even if a creditor files suit, it is not too late to settle an account for less than the full amount the creditor is trying to collect through litigation before a judgment is entered in the case. Many times, creditors will file suit in an attempt to force the consumer into a negotiation to settle the account. Once the creditor receives a judgment, their collection efforts and costs don’t end there. They must still pursue efforts to perfect the judgment and collect the amount of the judgment, so again, accepting a settlement for less than the full amount owed is generally always preferred.
Final Thoughts
Litigation occurs when you do not have a plan and do not communicate with creditors. You can avoid lawsuits and save yourself both time and money by working with professional negotiators, who will work with creditors on your behalf.
