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Creditor Lawsuits Creditor Lawsuits

Judgments

Despite your best efforts, at the end of a debt collection lawsuit the judge may rule in the creditor's favor and award a judgment against you. This, of course, is the worst-case scenario, but you still have options. Make sure you read and understand the Asset Protection section (and note the warning about fraudulent conveyance).

A judgment is simply a ruling by a court of limited jurisdiction in regards to a creditor lawsuit. The judgment regarding your debt liability is only good in your state, not in another state. If you moved to another state a creditor could try to have the judgment domesticated to the new state, but in practical terms, this seldom happens. It's too expensive, too much trouble, and there is too much lower-hanging fruit.

A judgment is limited by time as well. Each state gives the winning party a specific amount of time to enforce the judgment. But keep in mind some states let a creditor renew the judgment; that means even if the initial term of the judgment expires, you may still have the debt hanging over your head for a much longer period of time. All you have to do to find out if a judgment against you has been renewed is to ask the court after the initial statute of limitations has expired.

How long is a judgment valid? Check out the chart below (and verify again with your court). You'll also see the interest rate allowed on judgments and whether a judgment can be renewed and how often.

StateYears ValidInterest RateRenewable?
Alabama20 12%No
Alaska 10 7.5% No
Arizona5 10%Yes, each 5 years
Arkansas 10 10%Yes
California 10 10%Yes, each 10 years
Colorado 20 8% Yes, each 20 years
Connecticut20 10%No
Delaware 3 9.5% No
Florida20 10%Yes, at 7 years
Georgia7 12%No
Hawaii 10 10%Yes
Idaho 5 10.50% Yes
Illinois 20 9% No
Indiana20 10%Yes
Iowa 10 T-bill rateYes, in 9th year
Kansas 5 10%Yes
Kentucky 15 12%No
Louisiana 10 About 6.7% No
Maine 20 15%Maybe
Maryland 12 15%No
Massachusetts20 12%Yes
Michigan 10 About 6% Yes
Minnesota 10 About 5% No
Mississippi7 Court set No
Missouri 10 Contract rate No
Montana10 9%No
Nebraska5Bond rate + 1%Yes, each five years
Nevada 6 Prime rate + 2%No
New Hampshire20 6.50% No
New Jersey 20 None specifiedNo
New Mexico 14 8.75%No
New York 20 9%Yes
North Carolina10 8%No
North Dakota10 12%Yes
Ohio20 10%Yes, each five years
Oklahoma5T-bill rate + 4%Yes
Oregon 10 9%Yes
Pennsylvania5 6%Yes
Rhode Island20 12%No
South Carolina10 14%No
South Dakota10 10%Yes
Tennessee 10 10%No
Texas 10 10%Yes
Utah 8 Contract rate No
Vermont8 12%No
Virginia 20 9% No
Washington 10 12%Yes
Washington, DC20 70% of IRS tax rateNo
West Virginia10 10%No
Wisconsin 20 12%No
Wyoming5 10%No

Once a judgment has been awarded, the creditor will try to enforce (collect) the judgment. All of this information is covered in much greater detail in the Asset Protection section, but let's review the basic things they can try to do.

  1. Take money from your bank account(s). If you bank in the state in which judgment was awarded, the judgment creditor (the creditor who sued you and won a judgment against you) will petition the court to garnish your bank account and then ask the court to send a writ of garnishment to whatever bank they think you bank at. Think is the operative word here. They have to guess where you bank. They usually just have a writ of garnishment served on the top 5 local banks in your area—and they usually get lucky. Next your funds will be frozen and they will use this as leverage to get you to enter into some type of payment plan (most people don't have enough cash in their accounts to satisfy a judgment). The lesson here is to bank online with an out-of-state bank.
  2. Garnish your wages. While state law limits how much of your wages can be garnished, in most cases a creditor can garnish up to approximately 25% of your take home pay until the judgment is satisfied. If you quit your job and find a new one, the creditor will have to "track down" your new employment, but that is not particularly difficult. (North Carolina, South Carolina, Pennsylvania, and Texas do not allow wages to be garnished at all in order to satisfy a judgment; other states set limits on how much of your wages can be garnished.) If your state allows for garnishment, 25% of your take-home pay could be at risk. If you have multiple judgment creditors trying to garnish your wages they all have to get in line (garnishment allowances are per paycheck, not per creditor). Of course, if you quit and move to another state then garnishment will no longer be an option for the creditor. Social Security, disability benefits, Veterans payments and the like are all exempt from garnishment. Again, see the section on Asset Protection and your state's garnishment laws for more information.
  3. Put a lien on your property. A creditor could attach a lien to your home. In almost all cases the lien will be placed on real estate and not on cars, furniture, and other assets. While they can't foreclose on your home, if you decide to sell your home, the creditor (assuming the buyer wants a clean title) will get the amount of the judgment, plus interest, before you receive any of the proceeds from the sale. The good news is that a lien expires when the judgment expires so if you plan on keeping your home, a lien has little effect and will eventually expire. Though liens can be placed on your property they generally are not; creditors want cash and cash flow, not liens against property that may not be sold for years.

The bottom line is that if a judgment creditor doesn't know where you bank, or work, and you don't own a home (or you do but don't plan on selling), the judgment is essentially worthless. Move to another state, and the judgment is essentially worthless. Self-employed and bank out of state? Also worthless. It is no wonder that the vast majority (around 80%) of judgments are uncollectable—as a group, people with creditor judgments against them usually don't have many, if any, assets to collect on anyway.

Remember that the goal of responding to a debt collection lawsuit and asserting your rights is to make it too difficult and expensive for creditors to collect—to become high-hanging fruit. Most creditors are looking for a default judgment rather than to have to prove their case through lengthy and costly litigation. With so many judgments uncollectable, their profit margin dwindles quickly the harder it is to prove their case and/or enforce a judgment.

Remember, debt collection is business, so know your rights, play the game, and increase your chances for success!

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