Recently on our legal forum a user asked, “I have $20,000 in credit card debt, a car loan I cannot pay, and a personal loan of $5,000. The debt collectors have been calling for weeks now. I am wondering whether I can just ignore them? Don’t they have a process to write-off the debt if I cannot pay them?”
Steps to avoid a default judgment
If you decide to simply ignore your creditors several things are likely to occur; none of which are pleasant. First, they will probably attempt to collect the debt with a number of phone calls and letters.
At some point they may either decide to file a lawsuit against you in court and receive a judgment or they might sell your debt to a third-party debt collection agency who will attempt to collect the debt and split the proceeds from any debt collected with your creditor.
If your creditor decides to file a lawsuit in court and you do not respond to the lawsuit, they can simply ask the court for a default judgment against you. If the court issues a default judgment the court will give the creditor what they have requested. Depending on state laws, this will mean that the creditor may have a host of actions they can take to collect the debt, including property repossessions, wage garnishments, and bank account levies.
What if my debt is sold?
Another option is that your debt is simply sold to a third-party debt collector. If this happens you can expect the debt collection attempts to be increased to what some would consider a harassing level, making your life miserable until you decide to pay up.
Yes, there are laws to protect you from truly harassing actions, but often what third-party debt collectors are legally allowed to do to collect the debt will be sufficiently irritating.
What should I do to avoid credit collections?
If you decide to avoid your creditors you are facing a potential default judgment, plummeting credit scores, increasing debt obligations due to fees and interest, and harassing phone calls from debt collectors.
There is a better course of action.
- Contact the creditor and find out if they are willing to negotiate debt payments. If they are willing to negotiate know exactly how much you can offer to pay and the date when you can make the payment. Get everything in writing.
- Ask specific questions about what legal action they intend to take against you if you cannot pay.
- Take notes about who you talked to, what was discussed, and the date and time when you spoke.
- Talk to your creditor before the debt is sold to a third-party debt collector.
Filing bankruptcy is it an option?
Unfortunately, for many debtors, filing bankruptcy may be the only option to avoid certain judgments, wage garnishments, bank account levies, and property repossessions.
But by far the best way to avoid a judgment is to contact your creditor and find out how you can repay or renegotiate the debt. If this does not work and they do decide to sue, make sure you file an answer to the lawsuit.
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