Credit Judgment – Means of Collection

If a lender calls in a debt that has been defaulted upon and the debtor is unable or unwilling repay the extended loan, then the lender must take the debtor to court in order to force repayment of the extended credit; the court’s decision is referred to as a credit judgment and demands the exact amount that is to be repaid to the lender and how such repayment is to be made. Repayment can be made any number of ways including garnishment of wages, seizure of finances or property, or the placement of a lien on a property or asset which can be held in place until the debt or the qualified credit judgment has been paid in full. Whatever the means utilized, the object is the same – to help lending institutions or other lenders insure that their extended credit will not be taken advantage of or abused. They are to insure that there are consequences to not repaying a debt.

The most popular and therefore the most common form of judgment collection is wage garnishment. Every state institutes different laws and every judge interprets those laws differently, therefore the percentage taken from each paycheck can vary greatly depending on the amount owed and the amount the individual earns. Typically the percentage falls between five and ten percent of net wages earned. It is designed to allow the debtor to repay the loan without causing further financial strain that may send the individual in question into a declining fiscal tailspin that could lead to increasing debt and more problems.

While this is the most common means of collecting a credit judgment, it is not a fool proof method. In fact it is rather easy for a dishonest individual to manipulate the system. Typically, a debtor must present a current pay stub every few months so that the amount a court garnishes can be adjusted or redefined. Dishonest individuals may try to cut their work load temporarily thereby lowering their wages. When a court officer sees the lowered wages on the current pay stub, he or she mistakenly institutes a lower garnishment. The debtor then returns their typical work schedule and ends up paying much less through their wage garnishment. It is also very easy to secure a cash job in which there are not paycheck stubs and in which the earnings are not reported to the government.

The seizure of financial assets or property is also a means for securing judgment collection. In this instance the court identifies the financial assets and, through legal means, subtracts the amount awarded by the judge’s decision from these assets. Again it is easy for a debtor to hide financial assets from the court or to transfer physical assets to another owner. Therefore this can be a tricky process.

Another measure that courts use to force judgments is to place liens against property that is owned by the debtor. Obviously the debtor needs to own property outright before a lien can be issued. Since most debtors do not own property, this can be a limited method of choice. However, if property is owned, this is a great way to force credit judgment collection. A lien, in essence, holds a property hostage until the debtor repays the defaulted loan.

These are common ways that a lender can force a debtor to repay a defaulted loan or line of credit.