If you're dealing with persistent creditors who threaten to sue you for debt, it's important to understand what is a default judgment before you get too far along in the process. Learn the basics of a default judgment, how it affects your credit report, and what your options are for handling the debt or having the judgment set aside.
A default judgment is a decision made and recorded by the court indicating that you failed to appear because you ignored a summons or a subpoena from a creditor. This typically occurs after you've received extensive communication from a creditor and the company has decided to sue you in order to collect an unpaid debt.
You can avoid a default judgment by staying on top of debts and related legal matters. If you receive mail or a personal delivery from a US attorney, it's always in your best interest to open it and determine whether it requires any action. It may include information about legal proceedings that involve you or explain additional steps you'll need to take during a settlement process.
Remember that subpoenas may be delivered in a number of ways, depending on where you live. You may be served in person at home, in your place of business, or even in public. In some states, a subpoena may also be placed on your door, along with a mailed copy to ensure that you receive it.
Instead of simply sending you a monthly bill to settle your judgment, creditors have additional ways to collect the debt. A judgment can allow creditors to garnish your wages, draw money from your bank accounts, or even seize your real estate or other assets. When you receive a default judgment, be sure you understand what the payment options are.
In addition to the debt itself, many judgments can accumulate interest, which means the total amount owed can increase over time. Some debtors also become responsible for court costs or attorney fees on top of the judgment itself.
It's important to remember that since a default judgment is public record, it stays on your credit report for 7 years, though some states allow them to remain in place longer. In fact, default judgments can be renewed in some states, which means they stay on your record for an even longer period of time. If you've completed the judgment, however, it will likely be noted as paid and satisfied on your record.
Many creditors are open to discussing alternative ways to address a debt before it goes to court. If you can secure an amount of money that covers a reasonable amount of the debt, you may be able to negotiate with the creditor.
Get the arrangement in writing before making any large payments, so you can confirm that the creditor won't pursue the debt in court.
Even after you receive a default judgment, you may be able to negotiate with the creditor in order to satisfy the debt. The only difference in this case is that if the default judgment is already on your credit report, it will remain there for 7 years from the date it was entered by the court.
If you truly can't afford to satisfy the judgment and have a legitimate reason to do so, you can consider filing for bankruptcy. This will prevent creditors from garnishing your wages or accessing your bank accounts, and it has the potential to remove your personal liability for the debt. Bankruptcy doesn't always prevent creditors from filing liens on your real estate property, though. If you go this route, it's important to take special precautions and seek legal advice since navigating judgments can be difficult.
Just because you receive a default judgment from the court doesn't mean it has to stay on your record. Sometimes extenuating circumstances prevent you from responding to communication regarding a case or from receiving the subpoena at all. If you have a sound legal reason that you shouldn't have received a default judgment in the first place, you can appeal the ruling.
Grounds for a legal appeal include:
Clerical mistakes: The court might fix errors in the judgment on its own, but such a correction might require a motion.
Excusable neglect or fraud: A void or satisfied judgment, newly discovered evidence, or excusable neglect may all be valid reasons to appeal a decision.
Failure to serve: If you weren't personally served with a subpoena prior to your default judgment, you can contest the decision.
Though navigating a default judgment can be a challenging process, it doesn't have to mean a permanent negative mark on your record. Whether you satisfy the judgment, negotiate with the creditor, or contest the judgment, you can move past this legal issue in a matter of a few months or years.