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Steve Bucci, the Bankrate.com Debt AdviserDebt, collection agencies and your rights

Dear Debt Adviser,
Nightmare! I have a credit card that has been placed in collections. They say the only option is to settle 50 cents on the dollar in the next month to avoid judgment. I do not have the $4,000 needed to do that. I can make payments, but they are unwilling to accept monthly payments now. What does a judgment do to you, your credit and your future borrowing power? What are the details so I can be informed?
-- Stephie

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Dear Stephie,
Being in collections can feel like a nightmare, but being subjected to bullying tactics is even worse! Some collection agencies use the "judgment card" when talking with debtors to scare people such as you into paying their debt on the agency's schedule. The practice is despicable and most often untrue unless you have ignored previous collection attempts for a long time. In reality, most collectors try to avoid going to court to collect a bill because it requires getting a lawyer in your home state and sharing the fee! Unless you are seriously behind in your debt payments (as in more than six months) and have made no effort to pay, it is not likely the collection agency will file to receive a judgment on you.

I hope you are feeling better a little at this point. Now, let me give you some information about judgments. When you accepted the credit card, you gave the creditor the right to sue you in court, if necessary, to collect the money it is due. As the debtor, you would usually first receive a notice from an attorney that if you don't pay or make arrangements with them (not the collector) they will take legal action. This gives you a chance to make payment arrangements and stop the process. If this fails, next you would receive a notice or summons from the court regarding the debt owed and that the creditor is suing to collect. The summons would advise you of the court date and you have the option to defend the suit in front of a judge.

After listening to both you and your creditor, the court would determine how the debt must be repaid and you must abide by the ruling.

Many people fail to show up at court. This is a big mistake. Come prepared to show your sincerity and come with a plan to repay the debt. If you decide not to attend the proceeding on the scheduled court date, the judge would issue a judgment in favor of the creditor for the amount owed. With a judgment the creditor has the equivalent of a loaded legal gun pointed at you. But the trigger has not yet been pulled.

You would then receive a Notice of Judgment from the court that typically states you have 30 days to pay the debt. If you do not pay, the creditor has a legal right to go back to court to get a judgment execution order (this is pulling the trigger) to use such actions as filing a lien against your home or other property, wage garnishment (in states where this is permitted) or seizing your personal property to collect the debt. If you own a home and the creditor places a lien on it, you would have to pay the lien before you can sell, refinance or obtain an equity loan.

You have the right to appeal the judgment, but if you owe the money, it will only delay the inevitable. State laws vary on judgments but it is not uncommon for a judgment to be valid for up to 10 years, which gives the creditor a long time to work on collecting the debt.

Needless to say, a judgment on your credit report is a big negative mark as far as future borrowing power and may have implications in job searches, promotions or even getting insurance. Not as devastating as a bankruptcy, but enough to make life more difficult and expensive than it already is.

Now that you understand more about this nightmare, the logical next step is how to avoid a judgment. As I stated in the beginning, I believe the collection agency may be threatening a judgment to get you to pay a lump sum. I would recommend that you determine what monthly amount you can afford and send it to the agency, certified with a return receipt, with a written statement that you will pay that amount each month until the balance is paid. Most creditors will not turn down payment. However, if they do refuse and return payment and send your account to a lawyer, repeat the process with the attorney. Often you will get a favorable response. If not, and they take you to court, you will have a copy of the offer and proof it was received to show to the court that you made a reasonable attempt to pay the debt.

I hope this answers your questions regarding judgments. Good luck!

The Debt Adviser, Steve Bucci, is the president of Money Management International Financial Education Foundation and the author of Credit Repair Kit for Dummies. Visit MMI for additional debt advice or to ask a question of the Debt Adviser go to the "Ask the Experts" page to ask a debt question.

Bankrate.com's corrections policy -- Posted: Aug. 22, 2006
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