Judgment Debt – 5 Key Actions you need to take

A judgment debt can feel like a financial crisis, a dark cloud hanging over your head. It’s a court order demanding repayment of a debt to a creditor, and ignoring it can have serious consequences like wage garnishment, asset seizure, or even limitations on your ability to travel. But don’t despair! Here are 5 key actions you can take to address a judgment debt and move towards financial stability:

1. Understand the Judgment Debt:

• Review the Documents: The judgment debt paperwork is crucial. It will detail the creditor, the exact amount owed (including interest and court costs), and deadlines for payment. Don’t hesitate to take notes or highlight important points.
• Contact the Creditor: There’s no shame in reaching out to the creditor. Sometimes, clerical errors or mistaken identity can lead to a judgment debt. A simple phone call or email can clarify the situation and potentially save you unnecessary trouble.
• Identify the Debt Type: Understanding the type of debt (credit card, unpaid rent, medical bill, etc.) can help you explore potential solutions. For instance, medical debt might be negotiable with the healthcare provider, while a credit card judgment might be consolidated with other high-interest debts.

2. Assess Your Financial Situation:

• Gather Financial Statements: List your income, expenses, assets (like property), and liabilities (debts).
• Prioritise Debts: Not all debts are created equal. Essential expenses come first, ensuring your basic needs are met. Judgment debts, however, can have serious consequences if left unpaid. They can lead to wage garnishment or asset seizure, so prioritize them accordingly, but don’t neglect essential obligations.
• Consider Debt Consolidation: Juggling multiple debts can be overwhelming. Explore debt consolidation, where you combine several debts into one loan. This can simplify repayment and potentially lower your overall interest rate, freeing up more funds to tackle the judgment debt.

3. Explore Dispute Options (if applicable):

• Challenge the Judgment: If you believe the judgment is incorrect (e.g., wrong amount, mistaken identity, you weren’t properly served court documents), you may have a limited window to file a dispute with the court. This might involve legal representation, so weigh the potential costs against the validity of your challenge.
• Negotiate a Settlement: Don’t be afraid to approach the creditor with a settlement offer. Propose a lump sum payment that’s less than the full amount owed. Creditors might be willing to accept a smaller sum to avoid the hassle of continued collection efforts.

4. Develop a Repayment Plan:

• Budgeting is Key: Create a realistic budget that allocates funds for necessities, debt repayment, and (ideally) some savings.
• Contact the Creditor: Discuss a payment plan with the creditor. They might be willing to work out installments or lower the amount in exchange for guaranteed payment.
• Consider a Debt Management Plan (DMP): A credit counseling agency can create a DMP to consolidate and negotiate your debts with creditors for lower interest rates and affordable payments.

5. Protect Yourself from Further Action:

• Don’t Bury Your Head in the Sand: Ignoring the debt won’t make it disappear. It can lead to wage garnishment, where a portion of your paycheck is automatically diverted to the creditor. It can also lead to bank account levies or even asset seizure.
• Understand Wage Garnishment Limits: Most countries (including Australia) have limitations on the amount of your wages that can be garnished.
• Seek Legal Advice (if needed): A lawyer specialising in debt collection can advise you on your rights and legal options depending on your specific situation.