When you owe more money than you can reasonably repay, things get stressful very quickly. The companies that you owe money to will start calling you and sending you strongly-worded letters. They may freeze a line of credit that you rely on to cover your expenses or start assessing fees that drastically increase the balance of what you owe.
One of the biggest risks of falling behind on your bills isn’t the annoyance of collection phone calls but rather the risk of a creditor lawsuit. What happens if a company that holds one of your debts takes you to court?
They will ask the courts to enforce their rights
When a creditor intends to sue you, they will file paperwork with the courts and arrange for someone to serve you. You will receive notice of the pending lawsuit so that you can plan to attend the hearing.
You may be able to defend yourself against a creditor lawsuit if you can show you made payments that they haven’t given you credit for or if there are other, unusual circumstances. In many cases, however, the only thing the courts really care about is whether the debt is valid and how recently you have made payments.
Regardless of your personal circumstances or recent hardship, the courts are likely to side with your creditor if they determine the debt is valid and that you have fallen behind on payments.
What are the consequences of a creditor lawsuit?
The first and most obvious issue with losing a lawsuit brought by a creditor is that you will have a judgment on your credit report. That does not look good to other lending institutions or even prospective employers.
Beyond that, the judgment in favor of your creditor will likely mean that they can ask for legal assistance with forcing the repayment of the debt. The courts might agree to place a lien against your personal property or to garnish your wages, leaving you with not much more than what someone who makes minimum wage earns.
Understanding the effects of a pending creditor lawsuit can help you respond appropriately to one, possibly by filing for bankruptcy before you go to court.