Help! I Found a Judgment on My Credit Report

It’s scary enough to owe money you can’t pay back, but what may be even worse is finding out that you have already been sued for a debt, but didn’t even know it.

Mark wrote on the Credit.com blog:

I received a letter stating there was a judgment against me from 9-13-2006 and they’re trying to get a wage verification from my employer, so they can garnish my wages. This is seven years old and I don’t ever remember being made aware of this. What can I do?

Another reader, Leslie, asked about a judgment she knew nothing about:

I live in Texas and just recently divorced, Nov 2012. I had no income for the past 17 years. I just discovered a judgment has been made against me for a loan at a credit union. I was the primary account holder of the checking account and had to be put on the loan in order for my husband to get it. I was never served anything for this judgment and had no idea it was on there until I had to refinance my home after the divorce. Do I have any recourse for this or do I just need to bite the bullet and work something out with them?

A judgment is a decision by a court describing the outcome of a lawsuit. Any amounts owed will be described in the judgment. With a judgment the creditor often has the ability to go after wages, bank accounts or other property to collect the judgment, depending on state law.

How to Find If You Have a Judgment Against You

In most cases, when a creditor gets a judgment against a consumer it will be reported on the consumer’s credit reports. That’s because court judgments are a matter of “public record” — information available to the public through the courts. That information, like bankruptcy or foreclosure data, is collected by companies that provide it to the credit reporting agencies.

Your first line of defense, then, is to check your credit reports. At a minimum, order your free credit reports from all three credit reporting bureaus once each year. Judgments will typically be listed under the section describing negative items on your report.

In addition, though, it’s smart to monitor your credit score each month which you can do for free through a service such as Credit.com’s free Credit Report Card. If a judgment does appear, you will want to know as soon as possible, for several reasons, not the least of which is that your score will likely drop significantly.

Your Options

What if you check your credit reports and find there is a judgment against you? You generally have three options.

1. Fight it.

Before a creditor gets a judgment against you, it must typically serve you with the summons and complaint. The procedure varies by state and by court, explains Robert Hobbs, deputy director of the National Consumer Law Center. Examples include “personal service” where the summons and complaint must be hand-delivered to the person being sued or “abode” service, where they serve notice on the last known residence, to a person of suitable age. A description of different types of service can be found on the California courts website, though again, keep in mind that the type of service required in your case will depend on several different factors.

“If a person hadn’t been properly served and knows the legal process, then they can type up a motion to vacate a judgment or a motion to set aside a judgment,” says Hobbs. “Then there will be a hearing.” But even if the judgment is successfully set aside or vacated, it may not be the last the debtor hears about the matter. “It may start all over again,” he warns.

Trying to handle this yourself can be tricky. “The truth is there is a reason that we have law school,” Hobb says. “The collection attorneys have gone to law school. They win hundreds of cases every week, thousands a year.”

But that doesn’t mean debtors shouldn’t fight back if they believe they have been the victim of improper service (sometimes referred to as “sewer service”). In 2009, for example, then New York Attorney General Andrew M. Cuomo’s office sued 35 law firms and two debt collectors in New York State in order to throw out an estimated 100,000 default judgments improperly obtained against New York consumers.

A consumer law attorney may be able to help you determine if you have a case against the creditor or collector who sued you to obtain the judgment. Most offer low-cost or free consultations and charge reasonable fees.

2. Pay if off or settle it.

If your financial circumstances have changed since the time you fell behind on the debt, you may now be able to pay the judgment, either in full or for less than you owe as part of a negotiated settlement. Make sure the creditor files a “Satisfaction of Judgment” with the court indicating that it has been paid. When you pay in full, they are required to do so within a specific time period, so don’t be afraid to push for that.

If you negotiate a settlement, ask the creditor or collection agency to agree to file a satisfaction of judgment when you pay the agreed upon amount. “Get everything documented” suggests Michael Bovee, founder of Consumer Recovery Network. “What I am seeing is that sometimes it’s not always followed through on. If the court records haven’t been updated within 60 days or so, you may have to file your own motion with the court.”

Paid judgments can be reported for seven years from the date that they were entered by the court, while unpaid judgments can be reported until the statute of limitations has expired — a much longer time period in most cases. That means that if the judgment is more than 7 years old, as in Mark’s case above, paying it should result in it being removed from your credit reports. It may take a little while, though, for the court and credit reporting agencies records to be updated. You should expect results within no later than 60 days after you have paid it.

3. Wipe it out in bankruptcy.

If there is simply no way you can pay the judgment and you don’t want it hanging over your head indefinitely, find out whether you can discharge some or all of it (erase it) by filing for bankruptcy. Most court judgments can be included in bankruptcy.

Whatever you do, don’t ignore a judgment. In most states, judgment creditors have 10 years or more to collect, and can renew judgments that remain unpaid for another decade — or longer. And that means at any time you may find your bank account or wages at risk (again, depending on state law). One of our readers wrote:

I have 2 judgments for credit card debt. One has already started garnishing some money from my bank checking account. I’m unemployed and there is very little money in that account.

To avoid an unpleasant — and potentially expensive — surprise, find out if there is a judgment against you. If there is, find a way to put it behind you.