Will You Be Sued Over an Unpaid Debt?

The goal of all creditors is for consumers to repay borrowed money according to the terms and conditions of their original agreement. When a consumer debt fails to be repaid as agreed, creditors must decide the best option to take to recover their loss.

At this point, creditors have several options available. They may decide to use an internal or external collections department with the hopes of resolving the outstanding debt on a voluntary basis. Or they may choose to send the account to an attorney and seek a judgment against the consumer. Either way, while a debt remains unpaid, at some point the creditor must decide whether to proceed with legal action against the consumer. So during this evaluation process, creditors and/or debt collectors must determine if they feel a consumer is “suit-worthy.”

Here are the factors creditors and debt collectors use when determining whether to sue a consumer for an unpaid debt.

1. Where You Live

One of the first things that a creditor or debt collector looks for in a suit-worthy consumer is whether the consumer resides in a suit-worthy state. A suit-worthy state is one in which the laws are constructed to allow creditors to use methods such as wage garnishment, property liens and bank levies for involuntary repayment an unpaid debt.

In contrast, non-suit-worthy states do not allow one or any of these methods for involuntary repayment, thus leaving a creditor with an unenforceable judgment. Since the cost of legal proceedings are time-consuming and costly, creditors want to make sure they are taking the most efficient and cost-effective means possible and limiting lawsuits to those states that allow for enforceable judgments is one way of doing that.

2. Your Job Status

Once a creditor has identified the consumer lives in a state where judgments are enforceable through involuntary repayment such as wage garnishments, they begin to narrow down the accounts on which they’ll proceed with legal action. One of the first attributes they look for is whether the consumer is actively employed and receiving steady income. Employment is one of the single biggest deciding factors here. There are several methods of verifying employment — including validating the latest employment information the consumer has provided to the creditor, reviewing an updated credit report, or information obtained through the debt collection process.

3. Do You Own a Home?

Another factor used by creditors to determine suit-worthiness is whether or not the consumer owns a home. Sometimes homeownership itself is enough to justify filing for a judgment, but generally creditors look for built-up equity in the property. By utilizing a combination of credit reports and public property record databases, creditors are able to ascertain what, if any, equity is available in the property.

One of the main reasons creditors look for built-up equity before seeking a judgment, and ultimately a lien, on the property, is that by having a lien placed on the property, when a consumer goes to sell the property the built-up equity allows money to be left over from the sale which will then be applied to the unpaid debt before any proceeds go to the consumer.

4. Your Credit Report

A person’s credit report tells quite the story about their past, present and future financial narrative. The credit report is full of useful information for creditors when determining whether or not to file for a judgment. Creditors will look retrospectively for paid delinquent accounts in order to establish repayment patterns and look for trends such as: how long a consumer allowed accounts to go delinquent before resolving; if they paid delinquent debt while at a collection agency or before it went there; whether a judgment filing was needed to generate repayment.

They also look at current trends such as credit availability, recent paid accounts and trade line inquiries. Trade line inquiries are very helpful because they indicate what the consumer is attempting to do — such as getting a credit card, buying a car or even purchasing a home. So the credit report plays a very useful role in the determination process of filing for a judgment as well. You can spot changes by checking your free credit report summary on Credit.com. You can also get annual credit reports for free under federal law.

Regardless of what some may say — and what is crystal clear as it relates to legal action against consumers — is that creditors do not want to file for judgments against consumers to have a debt repaid. Creditors would always rather have the consumer pay back what is owed to them as agreed and when issues arise, creditors have and will always prefer to resolve matters on a voluntary basis. However, when voluntary measures prove unsuccessful, creditors are left with few options to recover the delinquent debt — and the main option is filing for a judgment. And when that does happen, creditors will tend to focus on those consumers from which they’re most likely to recover their money.