If you’re faced with a judgment — also known as a debt collection lawsuit — here’s what you need to know about your repayment options.
What is a judgment in court?
Judgments are formal decisions made by a judge following a lawsuit, typically from a creditor, due to non-payment of debts. Once a judgment is entered against you, the lender can garnish your wages, levy your bank account, or put liens against your real property such as real estate, in order to recoup what’s owed. You have three choices when responding to a judgment: Pay in full, settle for less or challenge the lawsuit.
Accept the judgment
If you agree that you owe the money, accept the judgment and pay the amount in full. If paying in full isn’t an option, work with the lender to set up a payment plan to satisfy the amount you owe over an agreed-upon period of time.
Before you agree to a payment plan, make sure your budget supports the amount you plan to pay. Also, ensure paying won’t cause delinquency on other obligations. Be sure to get the agreed-upon repayment plan in writing from the lender. Keep copies of all receipts of payments made. Once the amount is paid in full, the debt collector will file a “satisfaction of judgment” with the court. Your credit report should show the debt as paid in full. Any potential increases in your credit score will be reflected later.
Negotiate a judgment settlement
Sometimes lenders may agree to accept less than what’s owed, if you can pay your debt off sooner. You’ll need to work directly with the lender to come to a settlement amount.
Again, make sure your budget supports what you agree to pay and that paying won’t cause you to fall behind on other responsibilities. Be sure to get your agreement in writing and keep copies of all payments made. Once the debt is paid, look for the collector to file documentation with the court. Then your credit report will show the specific settlement amount of the debt paid. Any possible credit score increases will be reflected at a later date.
Challenge the judgment
There may be a chance for you to appeal a default judgment against you. If a collection lawsuit was granted to a lender in error or the amount of the judgment is incorrect, it may be possible for you to challenge it. Depending on the reason for the challenge, there may be a specific time frame for disputing the lawsuit. If pursuing this option, talk with an attorney about your situation and what your options may be.
Find out more about the long-term effects of judgments on your financial future before making a final decision. If you need help figuring out your next steps, contact your local branch and speak with a Financial Counselor.
The advice provided is for informational purposes only.