Collection agency debt, if ignored for long enough, can become a default judgment that haunts your credit report for far longer than a mere collection account. While this doesn't mean you should necessarily make arrangements to pay the collection agency (since that can rest the debt collection statute of limitations and be dangerous) you should be aware of how default judgments occur so that you can successfully avoid one.
What Is a Default Judgment?
A default judgment occurs when a debt collector files a lawsuit against you for refusing to pay the debt it claims that you owe. When it files a lawsuit, it is legally required to serve you with a court summons notifying you of the impending lawsuit so that you can appear and defend yourself. If you don't appear at the hearing, the judge will enter a judgment in favor of the collection agency by default. This is known as a "default judgment."
|If you don't defend yourself, the judge will rule against you.|
Collection agencies like default judgments because they prevent the company from having to actually hire representation and appear in court itself. That's right, nine times out of ten all the company does is submit paperwork to the court and sit back and wait for the default judgment to come rolling in.
Unless your state's laws require that you be personally served with a court summons should anyone attempt to sue you, you can rest assured that the collection agency will do everything it possibly can to ensure that you never realize that a lawsuit is underway. This usually includes such tactics as:
- Sending the court summons to an address you've never lived at.
- Sending the court summon to your old address
- Not sending a court summons at all
How a Default Judgment Hurts You
A default judgment shows up on your credit report. Although the FCRA states that a judgment remains on a consumer's credit record for seven years, this only applies in cases where the state's laws only allow creditors to enforce the judgment for seven years or less. If your state's laws allows a judgment creditor to enforce a judgment for, say, 10 years before that judgment expires, it will remain on your credit report for the full 10 year period. Renewals have no impact on the reporting period.
Not only will a default judgment probably cost you well over 100 credit points, depending on what your credit score was to begin with, it gives the collection agency the following rights in most states:
- Wage garnishment
- Property liens
- Bank account garnishment
Fighting a collection agency debt early on is crucial to avoiding a default judgment down the road.