In the world of credit and collections, you hear about collection accounts and judgments all the time, but they’re two very different stages of the debt collection process. Each has different implications for debtors and creditors and understanding the difference is key to good financial management and legal compliance.

What is a Collection Account?

A collection account is created when a debtor doesn’t pay a debt and the original creditor either sends it to an internal collection department or sells it to a third party collection agency. This usually happens after several attempts to collect the debt through regular billing cycles.

Collection Account Features:

• Credit Impact: Can hurt your credit score big time.
• Collection Efforts: These accounts involve continued collection activity from debt collectors through calls, letters and other communication.
• Recovery Options: Debt collectors may offer settlements or payment plans to recover the debt.

What is a Judgment?

A judgment is when a creditor sues a debtor and a court rules in favor of the creditor. A judgment is a more severe escalation beyond normal collection practices and usually happens after a creditor has exhausted all other collection efforts.

Judgment Features:

• Legal Power: Judgments give creditors the power to use additional collection tools such as wage garnishment, bank account levies or placing liens on property.
• Public Record: Unlike collection accounts, judgments are a matter of public record which can cause more severe credit score damage and public embarrassment.
• Enforcement: Creditors can enforce judgments through various legal means including writs of execution which allow for seizure of assets to satisfy the debt.

Sell a Judgment to a Collection Agency

In some cases creditors may choose to sell a judgment to a collection agency if executing the judgment is complicated or not cost effective. When a judgment is sold the collection agency takes on the responsibility of enforcing the judgment.

Selling a Judgment Process:

• Valuation: The value of the judgment is determined by the debtor’s ability to pay, the amount of the judgment and other factors such as jurisdiction and other liens.
• Transfer of Rights: The rights to enforce the judgment are transferred legally from the original creditor (or judgment holder) to the buying collection agency.
• Enforcement: The collection agency will then take further action to enforce the judgment using tools like garnishment or property liens to collect the debt.

Dealing with Judgments and Collection Accounts

Whether it’s a collection account or a judgment debtors should know their rights and options. Both can hurt credit scores and financial standing.

• Rights Under Federal Law: Debtors are protected under the Fair Debt Collection Practices Act (FDCPA) which sets standards for third party debt collectors and provides ways to dispute debts and stop harassment.
• Resolution and Negotiation: You can still negotiate settlements or payment plans even after a judgment is issued but it’s generally easier before a judgment is obtained.

Summary

A collection account and a judgment are two different things with different stages and severity of the debt collection process. Knowing the difference helps debtors make better decisions and creditors choose the best debt recovery methods. Selling a judgment to a collection agency can be a smart move for creditors who want to recover debt without the hassle of legal action.

Here are the answers to your questions about debts, collection agencies, and judgments:

Is it legal for your debt to be sold to a collection agency?

Yes, it is legal for your debt to be sold to a collection agency. Many creditors sell their unpaid debts to collection agencies to recoup some of the money owed. This process is a standard practice in the debt recovery industry. When a debt is sold, the collection agency typically gains the rights to collect the full amount of the debt from the debtor.

Can you dispute a debt if it was sold to a collection agency?

Yes, you can dispute a debt even if it has been sold to a collection agency. If you believe the debt is inaccurate, wrongly attributed to you, or unfair, you have the right to dispute it. Under the Fair Debt Collection Practices Act (FDCPA), you can request validation of the debt, and the collection agency must provide proof that you owe the debt and that they have the right to collect it. You should initiate this dispute in writing as soon as you are contacted about the debt.

What can a debt collector do with a judgment?

With a judgment, a debt collector has more enforcement tools available to recover the debt. These can include garnishing wages, seizing bank account funds, or placing a lien on property. The exact actions available can depend on state laws and the specifics of the judgment. Essentially, a judgment legally enhances a collector’s ability to claim owed funds.

Will debt collectors settle after judgment?

Yes, debt collectors might still settle a debt even after obtaining a judgment. Although they have legal means to enforce full payment, many collectors prefer to settle to avoid lengthy and potentially costly enforcement actions. Settlement can be more predictable and guarantee some level of repayment, whereas enforcement actions might not result in full recovery if the debtor has limited assets.

Can I buy a house with a judgment against me?

Buying a house with a judgment against you is challenging but not impossible. Judgments can significantly affect your credit score and may be seen as a substantial risk by lenders, which could lead to higher interest rates or a requirement for a larger down payment. In some cases, lenders may require you to pay off the judgment before approving a mortgage. It’s crucial to check with potential lenders about their specific requirements and conditions.

Do judgments go against your credit?

Yes, judgments do go against your credit. When a judgment is issued against you, it becomes part of your public record, which is reflected in your credit report. This can negatively impact your credit score significantly and stay on your credit report for up to seven years, even if you pay the judgment. In some jurisdictions, if a judgment is renewed, it could continue to impact your credit longer.

Understanding these aspects can help you manage debts more effectively and make informed decisions regarding credit and property purchases.

For recovery reach out to us at Clear Recovery Solutions