Did you have a significant amount of credit card debt and were unable to pay your bills? You likely felt terrible ignoring the past-due letters you got in the mail or the calls from the credit card company, but life happened and you couldn’t pay. There’s no need to feel bad about being taken to court for your credit card debt. Instead, read on to find out how to start planning for a brighter future.
What’s a Court Judgment on Credit Card Debt?
If you don’t pay your credit card bills, a court judgment can be made against you. Your creditor takes you to court in order to try to seize your property or garnish your wages in order to repay your credit card debt.
The whole process can be expensive since you’re often required to cover the court-related costs of the suit. You’ll also have to pay for a lawyer and figure out how to rehabilitate your credit afterward. If the judgment isn’t in your favor, don’t despair – you have choices.
What to Do After a Court Judgment
Wondering what you should do to rebound after a court judgment on credit card default? Here are some steps to consider.
1. Decide How to Respond
Just because you were ordered to pay your debtors doesn’t mean that’s your only option. You can do a few things when you find yourself in this situation.
The first thing you can do is file for bankruptcy. You might not want to do this, but it could be the best option given your situation. Filing for bankruptcy means that your assets will be divided among your creditors and that anything after that might be forgiven. Of course, filing for bankruptcy can be costly, and it leaves a mark on your credit for seven years. That will make it very hard for you to access credit and, if you can get a loan, you will have much higher borrowing costs.
The next thing you could do is decide to fight the judgment. That’s particularly important if you didn’t know about the court proceedings and were notified afterward of a default judgment. If you fight, you might be able to overturn the ruling.
Another option for you to consider is to settle the credit card debt. You can contact your creditor and come up with a payment plan that works better for you than the wage garnishment or asset seizure that was put in place. Sometimes a creditor will be willing to negotiate.
Finally, you might be able to claim that you’re judgment-proof. There are legal protections that cover consumers with modest incomes and few assets. If you don’t have much, then you can potentially protect your property or wages from seizure. Work with your attorney to determine what is protected, as this can vary by state.
2. Get Back on Your Feet
If you had problems with debt that landed you in court, you might have to make big life changes in order to get back on your feet. Even if your credit card debt mounted up because of things you had absolutely no control over, like getting in a car accident and not being able to work, you’ll still have to make changes.
Find ways to reduce your expenses so you don’t need to use credit in the future to get by. That might mean selling things that weren’t seized or downsizing your car or your home. Seek to reduce your expenses so you spend less than you make each month.
You also might want to take up a side hustle to make extra cash, especially if your paycheck is being garnished. Put any extra money toward an emergency fund so the next time something bad happens, you won’t have to use credit cards to bail yourself out.
3. Rebuild Your Credit
The problem with rebounding from credit card judgments is that they wreak havoc on your credit rating. That has a huge impact on your ability to qualify for credit in the future and the interest rate you’ll pay. Right after a court judgment, make a plan for how you’ll start rehabilitating your credit.
That will likely involve paying any other debts you have on time and reducing the percentage of your total available credit that you’re using. Experts suggest that to get the ideal credit score, you should use no more than 20 percent to 30 percent of your credit limit. If that’s not possible, every reduction is still helpful.
Finally, you might consider getting a friend to add you as an authorized user on one of their credit cards. Their good credit behavior on that account can help boost your score as it will be added to your credit file.
Author: Jeff Gitlen
Best Credit Cards by Type
Credit Cards by Brand