Judgments

Debt collection judgment? What you need to know.

A debt collection judgment is a court order that you owe the creditor money. The judgment is the final decision in a collection lawsuit. It gives the debt collector the power to garnish your bank account and wages. It has a negative impact on your credit score. And in some cases, creditors will exercise their post-judgment power to seize some of your personal property and have it sold to pay the debt. Having a judgment against you is an unpleasant situation to be in and is one of the main reasons why it's so important to answer the summons and complaint. If a debt collector has a judgment against you, here are some of your options:

Consider vacating the debt collection judgment

If the judgment was obtained by default, you may be able to bring a motion to vacate the judgment. This will give you a chance to defend yourself. Think of it as a do-over. But you're only able to get a debt collection judgment vacated in very limited circumstances. A consumer lawyer can help you decide if a motion to vacate is right for your case.

Negotiate a settlement or payment plan

If a motion to vacate the judgment is not appropriate in your situation, your options are pretty limited because the time to dispute the debt has passed. In many cases, your best choice may be to try to negotiate a settlement of the debt collection judgment. That may be the only way to avoid the stress and inconvenience of garnishments. Good deals are hard to come by after judgment because you've lost most of your leverage. But if you can demonstrate a significant financial hardship, or have a lump sum of cash available, you may be able to get the creditor to knock a decent chunk of the balance off.

If all else fails, bankruptcy may be your best option

If the judgment is for a significant amount of money, or if you have multiple judgments, your best choice may be bankruptcy. Bankruptcy puts an immediate stop to garnishments and other collection activity and will allow you to wipe out or manage all of your debts.

Remember that the FDCPA applies even after the judgment is entered

The FDCPA is a federal law that regulates what debt collections can and can't do when collecting. If a collection violates the FDCPA, you have a legal claim against them for up to $1,000 in statutory damages, plus provable out-of-pocket and emotional damages. The debt collector also has to pay your attorney fees and costs. A viable FDCPA claim is also great leverage to get a debt collection judgment resolved favorable. So keep a record of all the conversations you have with the debt collector and save all letters and voice mails from them. And if you think that a debt collector has violated the FDCPA, talk to a consumer lawyer right away.

What is a deficiency judgment?

A deficiency judgment is a legal judgment that can result after a foreclosure. A deficiency is the amount of the mortgage that isn't satisfied by the sale price of the home in foreclosure. Here's an example: First Mortgage = $100,000

Second Mortgage = $50,000

Property sells at Sheriff’s Sale for $90,000.

In a typical foreclosure by advertisement, even though the holder of the First Mortgage lost $10,000, it can't go after the homeowner any of the money it lost.

The holder of the Second Mortgage can go after the homeowner for the full $50,000 as a deficiency judgment.

How to vacate a judgment in a collection lawsuit

Although it's not possible in every case, you can vacate a judgment in certain circumstances. First a little background: in a debt collection case, a  judgment is a final court order that you owe the debt collector money. Most collection judgments are entered by default because the consumer didn't answer the lawsuit.  Having a judgment against you can lead to both bank and wage garnishments, as well as a lower credit score. Although you do have options to deal with a judgment, these options are somewhat limited. One possibility is to ask the court to vacate the judgment. To vacate a judgment in Minnesota, you'll need to prove the following four things:

A legitimate defense to the collection lawsuit

You must show the court that you have a defense to the debt collector's case. If the debt collector is a debt buyer, you can usually argue that they can't prove that they are the rightful owner of your account. You may also be able to argue that their evidence is insufficient, that the statute of limitations has passed, or that the judgment balance was too high. You don't have to prove your defense to vacate a judgment, you just have to show the court that you have a legitimate one. A good consumer lawyer can help you figure out what defenses apply to your case.

A good reason for not answering the complaint

There are many reasons for not answering the complaint--you just have to convince the judge that yours is a good one. Perhaps you were out of town when the lawsuit was served and you didn't come back until after the time to answer passed. Or maybe they left the lawsuit with someone at your house, but that person never gave it to you. Some judges will even accept the argument that you didn't understand what the lawsuit was and didn't know that you had to respond to it, although this can be an uphill battle.

That the judgment was entered less than a year ago

To vacate a judgment, you also have to show that you acted quickly once the judgment was entered. Courts have generally ruled that you have one year from the date that the judgment was entered to bring a motion to vacate. There may be an exception to this rule if you didn't even know about the judgment until after a year had passed. A consumer lawyer can help you determine if your case fits into this exception.

That the debt collector will not suffer any prejudice if the judgment is vacated

In most cases, the only prejudice that the debt collector will suffer if a judgment is vacated is having to take the time and spend the money to litigate the case again. But Minnesota courts have been very clear in ruling that additional time and expense are not sufficient prejudice to prevent a judgment from being vacated.

Also, if you weren't properly served with the debt collector's lawsuit, the judgment should be void. In Minnesota, a lawsuit begins upon service. So if there was no service, there wasn't a lawsuit. And if there wasn't a valid lawsuit, there can't be a judgment. Talk to a consumer lawyer if you believe that you weren't properly served with the collection lawsuit.

What is an Order for Disclosure?

In Minnesota, when a creditor obtains a judgment, they can request that the court send you a form called an Order for Disclosure or OFD. The form asks you where you work, how much you make, where you bank, and other questions about your assets. The idea is to allow the creditor to discover what assets you have available that may allow you to pay the judgment.

But here is the critical part:  you MUST fill out the OFD and return it to the creditor within 10 days. If you don't, then the creditor can go to a judge and ask the judge to issue a bench warrant for your arrest for failing to fill out and return the OFD.  That's right, they can haul you to jail for not filling out a form. So if you get an Order for Disclosure in the mail, make sure you truthfully fill it out and return it. Not every debt collector will seek a bench warrant for failure to return an OFD, but some will and you don't want to spend time in jail just for failing to fill out a form.