Judgment debt

3 key takeaways

• Judgment debt is a legally enforceable debt established by a court ruling, requiring the debtor to pay the creditor a specified amount.
• Failure to pay a judgment debt can lead to further legal actions, such as wage garnishment, property liens, or bank account levies.
• Judgment debts can affect a debtor’s credit rating and remain on their credit report for several years, impacting their financial stability and borrowing capacity.

What is a judgment debt?

A judgment debt is the result of a court decision in a civil lawsuit where the court orders the losing party (the debtor) to pay a certain amount of money to the winning party (the creditor). This debt is legally binding and enforceable, and it arises after the court has ruled in favor of the creditor, determining that the debtor is liable for the debt.

Process of obtaining a judgment debt

1. Filing a lawsuit: The creditor initiates a civil lawsuit against the debtor by filing a complaint with the court, outlining the reasons for the claim and the amount of money owed.
2. Court proceedings: Both parties present their case in court. The court reviews the evidence and arguments presented by both the creditor and the debtor.
3. Court judgment: If the court finds in favor of the creditor, it issues a judgment ordering the debtor to pay the specified amount of money to the creditor.
4. Enforcement: If the debtor does not voluntarily pay the judgment debt, the creditor can take legal steps to enforce the judgment, such as wage garnishment, placing a lien on the debtor’s property, or levying the debtor’s bank accounts.

Consequences of judgment debt

Legal enforcement

Creditors can use various legal mechanisms to enforce a judgment debt if the debtor fails to pay voluntarily. This may include:

• Wage garnishment: Withholding a portion of the debtor’s wages to pay off the debt.
• Property liens: Placing a lien on the debtor’s real estate or other property, which must be satisfied before the property can be sold or refinanced.
• Bank levies: Seizing funds directly from the debtor’s bank accounts to satisfy the judgment debt.

Credit impact

Judgment debts are recorded on the debtor’s credit report and can significantly affect their credit rating. A judgment debt can remain on the credit report for up to seven years, making it difficult for the debtor to obtain loans, credit cards, or favorable interest rates.

Financial strain

The enforcement of a judgment debt can lead to financial strain for the debtor, especially if significant portions of their income or assets are used to satisfy the debt. This can affect their ability to meet other financial obligations and impact their overall financial stability.

Avoiding and managing judgment debt

Negotiation

Before a lawsuit reaches the judgment stage, debtors and creditors may negotiate a settlement to avoid the time and expense of court proceedings. This can involve agreeing on a repayment plan or a reduced lump-sum payment.

Legal advice

Debtors facing a potential judgment debt should seek legal advice to understand their rights and options. An attorney can provide guidance on how to respond to the lawsuit, negotiate with creditors, and protect the debtor’s assets.

Bankruptcy

In some cases, debtors may consider filing for bankruptcy to discharge or restructure their debts, including judgment debts. Bankruptcy can provide relief from overwhelming debt and stop enforcement actions, but it also has significant long-term financial implications.

Related topics

• Wage garnishment: Learn about the process and implications of wage garnishment as a method of enforcing judgment debts.
• Credit reports: Understand how judgment debts affect credit reports and credit scores, and explore ways to improve creditworthiness.
• Debt settlement: Explore strategies for negotiating and settling debts to avoid court judgments and manage financial obligations effectively.

Consider exploring these related topics to gain a deeper understanding of judgment debts, their consequences, and the available options for managing and resolving them.