Court Judgments for Debt: Your Options After the Gavel

Getting slapped with a court judgment can fill a debtor with dread.

Most credit card debt is "unsecured," meaning it is not backed by property such as a home or car. But after a judgment ruling, the creditor can take steps to seize part of your wages, freeze your bank account, or even haul away your belongings.

In a debt collection case, the judgment is a court's decision that you owe a specific sum of money. Armed with the judgment, the holder of the debt, called a "judgment creditor," can take legal steps to seize the amount. It can also charge interest at a court-approved rate, typically in the range of 5 percent to 10 percent, until you pay up.

But the bang of the gavel may not be final. Instead of being the end of the line, a court judgment marks a phase in dealing with debt, a phase that comes with its own set of choices:

Fight the decision. In most debt judgments, consumers never got their day in court. Often these one-sided "default" judgments can be erased, giving the debtor another chance to fight the charges. The creditor's case may even crumble in court, if it lacks documents proving the debt. Settle the debt. Why would the winner of a judgment give you a discount on the amount due? A settlement in ready funds is a bird in the hand, lawyers say. For the creditor, collecting a judgment is time-consuming and fraught with difficulties. And if collecting the debt drives you into bankruptcy, they may wind up with nothing. File for bankruptcy. Debt judgments often trigger bankruptcies, especially if multiple debts are unpaid. Bankruptcy provides a partial shield against collectors, but carries its own costs and risks that must be weighed against what you stand to gain. Stay judgment-proof. People with few assets and modest income may be "judgment-proof," because legal protections exempt them from collection. But that does not mean you can ignore a judgment. It takes work to determine that your wages and belongings are protected from seizure by a complex web of state and federal exemptions. And you should take steps to head off wrongful collection attempts on your exempt property before they happen, consumer attorneys say.

Judgment's consequences

The worst choice to make about a judgment is to ignore it, experts say. Many people do so out of fear of the court process, but the consequences get ugly.

After a judgment you may be summoned to answer questions about your finances -- and asked to turn out your pockets on the spot, in some areas. Fail to answer the summons and it is remotely possible that you will be picked up by police for disobeying a court order.

Judgments are problems that don't go away by themselves. They last 10 years or more in many states, and are easy for the creditor to renew, because the law assumes that you had your day in court, or passed it up voluntarily. A judgment supposedly means that you and your opponent had your chance to make arguments and submit evidence, and the better case won.

"It's a documented case -- theoretically, it's been proven," said Joanne Faulkner, a consumer law expert in Connecticut.

Debt caseload bulges

Cases in state civil courts, where most debt cases are heard, grew by 11% over the decade that ended in 2010, according to the National Center for State Courts. In 2010, general purpose courts in 17 states saw 1.7 million new cases filed over contract disputes, most of which involve debt.

Just how many cases led to judgments is a difficult number to find in the fractured court system. Debt cases are handled in a variety of small claims courts and state courts subdivided into districts. But consumer attorneys studying the issue say that a flood of lawsuits by debt buyers is keeping courtrooms busy. Debt collection attorneys' expertise gives them the upper hand in working the system, consumer lawyers say. However, a growing awareness of the tilted playing field in creditors' favor is leading to changes in some states to increase protections for accused debtors. In 2013, Minnesota enacted a law requiring creditors to present documents proving the debt in order to obtain a judgment.

In today's court system, "creditors know that very few defendants will ever challenge the lawsuit, and overwhelmed courts and judges will simply enter default judgments in order to keep the flood of paperwork from bringing the workflow to a halt," Peter Holland, a law professor at the University of Maryland, wrote in an analysis called "Junk Justice: A Statistical Analysis of 4,400 Lawsuits Filed by Debt Buyers," published in March in the Loyola Consumer Law Review.