The Judgment Process for a Credit Card
Unpaid credit-card debt doesn't only damage your credit -- it also leaves you subject to a court judgment. A creditor obtains a court judgment by winning a lawsuit against you. The court's judgment provides the creditor with additional methods by which it can collect your defaulted credit-card debt.
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You are not at risk for a judgment until your credit-card company deems your delinquent credit-card balance "uncollectable" and charges it off. Through a charge-off, the company can sell your debt to a collection agency and claim a tax loss on the remaining balance. Because charge-offs are standard in the credit-card industry, almost all debt-collection lawsuits that result in judgments are initiated by collection agencies rather than the credit-card companies themselves.
Significance
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A creditor with a court judgment against a debtor enjoys greater collection ability than a creditor who has yet to sue. According to Bankrate.com, court judgments can provide creditors with the right to garnish bank accounts, garnish wages and record real estate liens against debtors' homes.
A credit-card debt is unsecured. Thus, neither the credit-card company nor any collection agency it hires can legally seize your money or property for not paying your credit-card debt without a judgment.
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Facts
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Once a creditor files a lawsuit against you, it must formally notify you of the impending suit by serving you with a summons and complaint. State laws vary concerning how a plaintiff in a lawsuit must serve the summons and complaint. Thus, you may receive the documents via mail or a process server may deliver them to you in person. The summons contains the date of the court hearing while the complaint details the reason behind the creditor's lawsuit.
Time Frame
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Should a collection agency seek a judgment against you, it must file its lawsuit before your state's debt-collection statute of limitations expires. Each state's laws differ on how much time any creditor has to pursue a court judgment. Because of this, a state's statute of limitations for debt collection can range anywhere from two to 10 years.
Effects
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If you appear in court and fight the lawsuit, your creditor must prove that the debt in question actually exists and was incurred by you. Because collection accounts are sometimes sold repeatedly before a lawsuit takes place, a collection agency may have difficulty proving a debt's validity in court.
If you do not show up at the court hearing, the judge considers your failure to appear as consent to the allegations against you and grants your creditor a default judgment. Unless you fight the judgment, the creditor does not need to prove its claims to the court.
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