During this severe, prolonged economic downturn, legal judgments should not make consumers feel embarrassed or depressed. With the nation's unemployment rates at record highs, consumers everywhere are struggling to pay their debt. Even for consumers who are employed, it's often difficult or practically impossible to meet minimum monthly payment requirements. Matters are made even worse when the rich and powerful lending institutions respond to missed payments by raising interest rates and imposing additional fines and penalties. As a result, after you've missed just two or three monthly payments, the amount owed escalates, often making it impossible to meet the minimum requirement. In the blink of an eye, a judgment can be entered against you.
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A recent client owed a mere $79 minimum payment on one of her credit cards. Like many struggling Americans, she was unemployed at the time and was receiving only $900 per month in unemployment insurance benefits, which she needed for food, hygiene products, and rent. To some, $79 may seem like a pittance, but for her, it was a considerable amount of money. When 30 days passed and the minimum payment was not met, the bank added a late fee and an over-limit fee and increased her annual percentage rate, raising her minimum payment to $216. After four months, her minimum payment rose again - this time to an astounding $489.
A lawsuit was filed and a default judgment was entered against her. Struggling consumers such as her are far from rare. If a default judgment has been entered against you, it is very important to understand a few basic guidelines.
Do Not File Bankruptcy to Avoid a Judgment
Some consumers believe that filing for bankruptcy will remove a judgment and negate their responsibility. First of all, not all judgments can be included in a bankruptcy filing. And while it is true that most judgments can be avoided by filing for bankruptcy, a whole new set of problems arises. Your judgment may be dismissed, but a declaration of bankruptcy will remain on your credit report for more than 10 years. Interest rates on your credit cards, mortgages, automobile loans, and any other credit you may wish to establish will skyrocket. You may be avoiding a $3,000 judgment, but the increase in interest rates can cost you ten times more than the money you saved by filing for bankruptcy and avoiding a judgment. Unless you have absolutely no alternative, filing for bankruptcy must be your absolute last resort.
Do Not Pay Back the Creditor in Full or Settle with the Creditor
Many consumers contact their creditors and offer to pay them back in full or settle for a reduced amount. This is music to the ears for creditors, and they will respond by promising you the moon. However, even though paying a creditor in full or settling for a reduced fee may relieve your financial obligation to the creditor, this arrangement will still hurt your credit score. The reason for this is simple. When a judgment is attached to your credit report, it shows just that - a judgment. When you pay off or settle a judgment with a creditor, it will appear as a paid-off judgment on your credit report. Potential creditors who decide whether to give you credit and also determine the rate of interest on the loan will still know that at one point in your life, a judgment was entered against you. This negatively affects your credit score. The unfortunate truth is that unless a creditor is willing to remove a judgment from your record, paying off or settling your debt has little to no benefit on your credit score.
Don't Wait for a Judgment to Simply Vanish
Some consumers believe that judgments will magically disappear after a certain time and decide to wait it out rather than addressing the problem. And although it is true that some judgments may be forgiven in time, this period is interminable. In other words, it may not last forever, but it might just as well be an eternity. Additionally, the laws that determine the length of time a judgment will remain on your credit report vary from state to state and also differ based upon the type of debt involved. For these reasons, waiting for years and years before a judgment is finally removed from your credit report may not be such a great idea.
Do Contact an Experienced Consumer Debt Attorney
Before deciding whether to file for bankruptcy to avoid payment of a debt, we recommend that you speak with an experienced consumer debt attorney who specializes in vacating judgments. Attorneys with expertise in this growing field can advise you regarding your options, explain how to defend against the debt if you believe you should not have to pay it, and determine when the debt will naturally be removed from your records. After such a consultation, you will be able to determine the most beneficial course of action based upon your unique circumstances.
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