Saturday, May 18, 2013

What Happens If a Collection Agency Sues You and Wins?

Debt collectors love to threaten debtors with lawsuits. It's the ace up their sleeve. It seems to be ingrained in the psyche of every American to fear lawsuits the way some dogs fear thunder. When you hear that word,
you just want to go hide under the bed and shake until its all over. Most of the time, the collection agency doesn't actually sue--they just threaten to. Granted, the Fair Debt Collection Practices Act makes it illegal for a debt collector to threaten to do something they have no real intentions of doing, but you can't exactly prove someone else's intentions in court. Collectors know this and use it to their advantage.

But what happens if the collection agency does sue? Lets go over some of the potential consequences of a collection agency lawsuit.

Wage Garnishment

This is a fairly common consequence of a debt collection lawsuit. If the collector knows where you work, they can obtain a wage garnishment order through the court and serve it on your employer. Your employer can't fire you just because it received a garnishment order (that's discrimination) but if you already have a garnishment order against you, say, for child support, and your employer receives a judgment garnishment, they're well within their rights to send you packing.

Some people avoid wage garnishment by switching jobs each time a garnishment order goes through or simply by being unemployed (the most effective way is by being self-employed, but we're not gong to go there today). Keep in mind, however, that an aggressive collection agency can call you to court for a post-judgment interrogatory and force you to disclose your employer.

Property Liens

Own a house? Own a car? Watch out. Collection agencies can use their judgments to place liens against property you own. This prevents you from selling the property without paying off the lien. Of course, in some cases, collection agencies use their liens to seize the property, but these situations are still thankfully few and far between. If you have a mortgage or auto loan, your property is probably safe from seizure, as the
Own a house? Watch out for property liens.
collector would have to pay off your existing lien before it could apply any proceeds to its own debt.

Bank Levy

Just like a collection agency with a judgment can force your employer to garnish your paycheck, it can also force your bank to hand over any money you hold in checking or savings accounts. Certain funds, such as retirement money, unemployment, child support, etc. are exempt, but a collector can generally seize any and all non-exempt funds your account contains--even if doing so takes your account down to zero. And if you happen to have a joint bank account with another individual, that person stands to lose their money too. Even in states that protect joint account holders, only half of the money is typically protected.

The worst part of a bank levy isn't the fact that a collection agency can seize every penny. It's the fact that they can execute the levy over and over again until you either switch banks or the debt is paid in full. While switching banks will give you momentary relief, the collector will eventually find you and levy your new account. If it can't track down your bank account, it can drag you back to court and force you to disclose your new bank to a judge. Ouch.

Credit Damage

If the financial consequences of a collection agency lawsuit weren't bad enough, you'll have to suffer the credit consequences as well. You already know that a collection account deals a significant blow to your credit scores. Fortunately, that account can only remain on your credit report for 7 years and 180 days from the date you stopped paying the original creditor.

If the collection agency sues you and wins, however, a civil judgment shows up on your credit report. A civil judgment is a public record, just like a bankruptcy or foreclosure, and deals some serious damage to your credit scores. Unlike collection accounts, the reporting period for a judgment isn't retroactive. It begins the date the judgment is entered. Your state's enforcement period dictates how long a judgment remains on your credit report. If the enforcement period is less than 7 years, the credit bureaus remove it after 7 years. If the enforcement period exceeds 7 years, (and most do) the judgment remains for the full enforcement period. In other words, a collection agency's judgment could haunt your credit report for a decade or more.

Long story short, if a collection agency sues you and wins, you're in a world of hurt. This is why its so crucial to seek help before things reach this point and to learn how to defend yourself in court if a collection agency follows through on its threats to sue.

Related Posts:

The Debt Collection Lawsuit Threat

Funds Exempt From Bank Account Garnishment

Make Yourself Judgment Proof

1 comment:

  1. Just wanted to mention there are certain exemptions that vary by state, such as Illinois:
    List of Exemptions
    Personal Property Exemptions

    For each family member, necessary clothing, a bible, school books, and family pictures;

    One motor vehicle in which interest does not exceed $2,400;

    Wildcard Exemption: The exemption is $4,000 worth of property, including money in a bank account. The Wildcard Exemption is a stackable exemption. For example, you can add your wildcard exemption of $4,000 to your car exemption and have a car worth $2,400;

    $1,500 worth of implements, professional books or tools for a trade;

    Health aids prescribed by a physician; Money from the sale of exempt property. HOWEVER, the property is not exempt if the property was purchased with the intent of converting non-exempt property into exempt property or with the intent to defraud creditors.

    Homestead Exemption: $15,000 of equity in a house, mobile home, condominium, building or lot of land occupied as a residence by the debtor is exempt. Each couple who jointly owns a home would have a $30,000 homestead exemption since each could exempt $15,000.

    Income Exemptions
    Public Aid and General Assistance:
    Aid to the Aged, Blind or Disabled (AABD)
    Aid to Families with Dependent Children (TANF)
    General Assistance (GA)
    Social Security
    Supplemental Security Income
    Veteran's Administration Benefits (all V.A. benefits are exempt, except benefits subject to specific claims by the United States government)
    Worker's Compensation
    Black Lung Benefits
    Unemployment Compensation
    Alimony, Support and Maintenance (exempt only to the extent that they are needed for personal support and the support of dependents)
    Pension (exempt only to the extent that they are needed for personal support and the support of dependents)


    The following payments are exempt:

    Crime Victim's Award
    Wrongful Death Award or Life Insurance payments of a person on whom you are dependent to the extent reasonably necessary for your support
    Payment of up to $7,500 for personal injury to you or your dependent

    85% of Gross Weekly Wages

    Wages cannot be garnished unless take home pay after taxes is more than $371.25 per week (45 times the minimum wage). If take home pay is more than $371.25, the most that can be garnished is 15% of weekly gross pay.

    This information is based on laws, which can be found in chapter 735 of the Illinois Compiled Statutes, at sections 5/12-803, 5/12-901, and 5/12-1001.