Have you recently lost a debt collection case to a debt collector but have no way to pay it without ruining yourself financially? Many debt collectors are simply looking to gain money, and they often don’t expect you to have any way to defend yourself in court, but don’t fret. If you’re wondering what happens after a default judgement is issued, there are ways to help get you out of this sticky situation.
What is a Default Judgement?
A default judgment is a type of ruling granted by a court. A default judgment entered means the court has ruled in favor of the plaintiff because the defendant did not respond or appear in court. It happens when a party (most often the defendant) doesn’t show up to the court hearing or otherwise doesn’t follow a court-ordered action and ends with the court ruling in favor of the opposing party. If one doesn’t show up to the hearing at the district court or small claims court, a judge may proclaim default judgment and rule in favor of the party that followed the court-ordered action. The defendant is then obligated to adhere to this judgment and may have to face other consequences of failing to appear in court.
Are There Ways to Prevent a Default Judgment in Texas?
The best way to prevent a default judgment in Texas is to show up to your court hearing. Ensuring that you have filled out and submitted the correct court form is crucial in responding to a debt lawsuit. According to the Federal Trade Commission, about 60-95% of debtors don’t show up to the court hearing, thus resulting in a default judgment that could’ve been easily avoided. You can also challenge the lawsuit, simply requiring the creditor to prove their case. The creditor may not have the evidence to prove their case, particularly if they are not the original creditor, and there’s a chance the case may be dismissed as a result If they can’t prove they legally own the debt, then you may not be legally obligated to pay.
Consequences of a Default Judgement
A default judgement can have severe consequences on your financial stability and credit score. In addition to the judgment amount, you may also be responsible for paying court costs, which can further strain your finances. Understanding these potential impacts can help you take the necessary steps to mitigate them:
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Wage Garnishment
- One of the most immediate effects of a default judgment is wage garnishment. A creditor can obtain a court order to deduct a portion of your wages directly from your paycheck to repay the debt. This can significantly reduce your take-home pay and make it challenging to cover your living expenses. Note that in Texas, this collection remedy can only be used in limited circumstances.
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Bank Account Levy:
- Another serious consequence is a bank account levy. This allows a creditor to freeze your bank account and withdraw the amount owed. This can be particularly devastating if the levied funds were intended for essential expenses and basic necessities like rent or groceries. Social security funds are exempt from bank garnishment.
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Property Lien
- A creditor can place a lien on your property, such as your home or car. This lien can prevent you from selling or refinancing the property until the debt is paid off, complicating your financial situation further.
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Credit Score Impact:
- A default judgment will be recorded on your credit report, significantly lowering your credit score. This can make it more difficult to obtain credit in the future, whether for a mortgage, car loan or even a credit card.
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Employment Challenges:
- Some employers check credit reports as part of their hiring process. Employers may view a default judgment on your record as a sign of financial irresponsibility, which could impact your employment prospects.
Understanding these consequences underscores the importance of addressing a default judgment promptly and seeking professional advice to navigate the situation.
Responding to a Debt Lawsuit
Responding to a debt lawsuit is crucial to avoid a default judgment. Here are some essential steps to take:
- Seek Legal Counsel: The first and most important step is to consult with a lawyer who specializes in debt collection cases. Legal counsel can help you understand your rights and the best course of action to take.
- Review the Complaint: Carefully review the complaint filed against you. Ensure that all the information is accurate and complete. Look for any discrepancies or errors that could be used in your defense.
- File a Response: You must file a response to the complaint within the specified timeframe, usually 20-30 days. Failing to respond can result in a default judgment being entered against you. Your response should address each point in the complaint and state your defenses.
- Gather Evidence: Collect all relevant evidence to support your case. This can include financial records, correspondence with the creditor, and any other documentation that can help prove your position.
Taking these steps can significantly improve your chances of a favorable outcome in your debt lawsuit and help you avoid the severe consequences of a default judgment.
What Happens After a Default Judgement Is Issued? How to Deal with a Default Judgment?
Finding your way out of a default judgment can be challenging, but it’s not entirely impossible. Courts typically issue a default judgment when the defendant fails to respond to a court summons or appear in court. There are a few things you can do to get out of one.
You May Be Able to Vacate the Judgment
In Texas, you can file a motion to vacate the judgment if you prove you weren’t informed of the original hearing. You can also file if you had excusable neglect or a valid excuse for not appearing. You must submit this motion to the court clerk within thirty days to have a chance at vacating the judgment. This process is also referred to as setting aside a default judgment.
If you appeared at the original hearing, fought against the plaintiff, but lost, you’ll likely be denied another trial. If that isn’t the case and the court grants your motion, you have another chance to get the judge to rule in your favor.
File for Bankruptcy
Many consider bankruptcy an “extreme” option, but it often proves more favorable than facing financial ruin from unpaid debts. Filing for bankruptcy is a form of debt relief that can help you manage or eliminate your debts. A bankruptcy can essentially wipe away your debt and/or put a pause on the lawsuit if it hasn’t been settled yet. Even if the lawsuit has already been ruled against you, the bankruptcy will likely overrule the judgment.
There are a few things a bankruptcy won’t erase though, such as student loans, child support, or criminal charges.
Claim Property as Exempt from Bank Account Levy
The Texas Constitution allows you to claim certain property or items as exempt from seizure or liens, preventing their seizure due to a judgment.
It’s important to hire a judgment liens lawyer for this process. Types of exempt property include:
- Primary residence
- The entire value of a motor vehicle
- Family cemetery plots
- $50K worth of individual, personal property
- $100K worth of family property
- College funds
- Retirement funds
Settle for Less with a Debt Collector
You can negotiate directly with a creditor to settle out of court for less than you might owe if the court ruled in the creditor’s favor. Even if the court has already issued a judgment, a lawyer can negotiate with the creditor on your behalf. They understand the proper steps to take. They can accurately assess the court-ordered amount and consider how much you can realistically pay. By contacting the creditor, they can propose an offer, facilitate negotiations, and arrange a settlement satisfactory to you. Alternatively, they can secure a settlement more affordable than the original judgment.
This often involves creating a payment plan or agreeing on a lump sum payment to settle the entire debt.
Gathering Information
Gathering information is a critical step in responding to a debt lawsuit. Here’s how to do it effectively:
- Review the Complaint: Start by thoroughly reviewing the complaint to ensure it is accurate and complete. Note any discrepancies or errors that could be used in your defense.
- Gather Financial Records: Collect all relevant financial records, such as bank statements, credit card statements, and payment records. These documents can help demonstrate your financial situation and support your case.
- Identify Witnesses: Identify any witnesses who can support your case. This could include friends, family members, or colleagues who can attest to your financial situation or provide other relevant testimony.
- Research Debt Collection Laws: Familiarize yourself with debt collection laws in your state. Understanding your rights and obligations can help you build a stronger defense and ensure that the creditor is following legal procedures.
By gathering comprehensive information, you can better prepare for your court case and increase your chances of a favorable outcome.
Be Careful of Bank Levy
Once you have a Judgment issued against you, the judgment creditor can file a complaint known as a writ of garnishment that can be used to withdraw money from your bank account to pay the judgment. In addition to wage garnishment, a creditor can also impose a bank levy to freeze your bank account and recover the owed amount. This can be a devastating experience for a judgment debtor as the money that gets levied from their bank account could be the money they need to pay their rent or buy groceries. So this is a very important reason to not ignore a Judgment.
Do I Need a Lawyer to Vacate a Default Judgment?
While not legally required, hiring a lawyer to vacate a default judgment is highly recommended. Lawyers are experts in the legal field. They are more likely to handle the situation in a way that benefits you. A lawyer can help you gather and organize information and evidence related to your case. They can also provide the advice you need to improve your chances of winning. As they say, a little advice can go a long way!
Hiring a lawyer is always in your best interest when it comes to legal battles, and a default judgment is no exception. Seeking legal advice is better than trying to tackle the task on your own, especially if you’ve never dealt with anything similar before. If you live in Texas, consider contacting us at Warren & Migliaccio, LLP. We’ll do our best to provide you with the legal help and advice you need.
