Creditors owed money by individuals have a variety of options available when collecting on a debt. They can send strongly-worded collection letters, make collection phone calls and report the matter to the credit bureaus.
In more serious cases where individuals cannot fulfill their financial obligations, creditors might eventually decide to take legal action. The law allows creditors dealing with a default on a debt to sue the party who owes them money.
A creditor lawsuit can seek to impose a variety of consequences for an individual who owes the money, many of which are significant and long-lasting. The following are the most common negative consequences associated with a creditor lawsuit.
Wage garnishment
When creditors successfully sue individual debtors, they can then use that judgment to pursue faster repayment of the underlying debt. Frequently, creditors seek a judgment in the hopes of pursuing wage garnishment.
Garnishment allows those with a judgment to automatically intercept a portion of the debtor’s income. Some of the debtor’s disposable income could be at risk of garnishment, which means it comes out of their check before it ever reaches their personal bank account. The creditor no longer has to wait for them to voluntarily make payments. Instead, the payment is automatically deducted from their earnings.
A property lien
The courts also potentially have the authority to grant certain creditors a protected interest in assets that belong to the debtor. A creditor could ask for a lien against real property or a vehicle in some cases. Government authorities attempting to collect on tax debts might be able to levy bank accounts in some scenarios.
Those collection efforts can endanger someone’s most valuable assets and imperil their financial future. A creditor judgment often takes a scenario in which someone already struggled with their finances and pushes them into an even worse position. Service with it lawsuit can lead to people feeling panicked and frightened about the future.
In many cases, a personal bankruptcy filing can be the most effective response to a pending creditor lawsuit. The courts may dismiss the pending lawsuit until the filer resolves their bankruptcy case. Understanding what might happen after a creditor targets an individual for repayment can help people choose the best path forward given their circumstances.
