Suppose Big Bank Credit Card sues you and gets a judgment. A common question is, “so what”? Me and my clients live in Texas, and the general consensus is that Texas is difficult place to collect debts. So, what can a creditor really do to collect?
First, let’s consider the judgment. It is enforceable for up to 20 years. And, it usually grows at a standard interest rate between 5% and 15%. So, even if you think yourself judgment- proof now, what about 5, 10, or 20 years from now?
Second, let’s consider what you can expect a creditor to do to collect their judgment:
- Recorded in Land Records: This is the most common thing creditors will do to collect a judgment. Normally they file only in county where the lawsuit was filed. But, it could be filed in any (or all) Texas counties. With a little more work, it can be filed in counties in other states. Filing the judgment in land records basically creates a lien against real property in that county. They can’t force the sale of the land, but if you sell or inherit land in that county, then the creditor gets paid before you do. Your homestead is legally protected from this type collection, meaning you can sell your house without paying this lien. But, in reality it rarely works that way. You must take steps to actively protect your property at least months before it is sold. This happens rarely. And, no title company is going to issue a title policy when a lien is outstanding, so you are often faced with the choice of paying the lien or killing the sale. The rare super-aggressive creditor lawyer will do a little research and file a judgment in the county where the lawsuit was filed, any other county where you own real property, and the county where your parents live.
- Regular Contact and Settlement Offer: This is the second most common thing creditors do to collect judgments. Judgment creditors call and send letters trying to collect and offering settlements.
- Bank Account Garnishment: This is the third most common action a creditor takes to collect a judgment. It is easy for a creditor to find out where you bank and what day you get paid. From there, it is just a matter of timing to get approval to seize all the money in your bank account. Normally, this happens with no warning to you.
- Seizure and Auction: This is rare in credit card lawsuits less than $10,000.00. A judgment creditor can use a court order to make you tell them what you own. Then, they can have the sheriff seize property and sell it at auction. Some property is automatically protected, including most of the things people generally own. What isn’t protected? Cash, financial accounts, boats, excess vehicles, cell phones, computers, firearms (more than 2), investments, and land (not homestead). This is not an exclusive list.
- Wage Garnishment: This is rare in Texas and even rarer in credit card lawsuits. This takes a seriously aggressive attorney. Basically, the judgment creditor gets court permission to have your employer withhold a certain amount from each paycheck to pay the judgment. In Texas, a wage garnishment cannot happen if your paychecks come from Texas. But, 46 states allow wage garnishment. The exceptions are Texas, Pennsylvania, and both North and South Carolina. If your paychecks come from one of the 46 states that allow wage garnishments, your wages can be garnished.
- Receiver Appointed: This is rare in credit card lawsuits. As with seizure and wage garnishment, this takes a seriously aggressive attorney. That attorney would ask the judgment court to appoint a person called a Receiver to take over your life. You can’t do anything with your assets or your money without Receiver approval. You can’t even file bankruptcy without Receiver approval. This is the worst-case scenario for people with assets.
These are the risks you take when a creditor gets a judgment against you. Still feeling judgment-proof?