How Defaulting on a Debt Affects Your Credit Score
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What are the consequences of defaulting on a debt and how does that affect your credit score? To find out, we asked Steve Recordon, an attorney from San Diego, California whose firm represents individuals who have been sued or harassed by debt buyers. Here's what he told us:
The effect of a default is that the debt buyer [someone who purchased bad debt for pennies on the dollar and then tries to collect on it] gets a judgment, so now it doesn't matter that they couldn't prove their case in the first place. It sends it down a whole different channel and now their job turns from obtaining the default judgment to collecting on the default judgment. A judgment in California is good for 10 years and then it can be renewed over and over again. I personally worked on a case where I renewed a judgment 3 times, for a total of 30 years.
Credit scores aren't the only thing consumers should be concerned about. Recordon told us that debt buyers will do what it takes to get their hands on your future inheritance. He explained:
[Debt buyers] are big at filing a default judgment and recording it in the city in which you live. What this means is that if you inherit your parent's house 15 years from now, the creditors have got the default recorded and the judgment actually attaches to the house that you now own as soon as it's transferred into your name. So, it's a long-term way for them to get their money.
Beware of Accruing Interest on Default Judgements
Interest accrues throughout that entire period and it can add up to a substantial amount of money. Recordon provided the following example, "I had a default judgment against someone in San Diego that took me 24 years to collect. The original default was somewhere around $40,000 and the person ended up paying around $250,000 in the end. In that case, the percentage of interest on the default judgment changed over the years. It had been 7% in the early days and has been at 10% for the past 20 years or so - and it just keeps going up."
How Default Judgments Follow You
You may not have money now, but debt collectors will wait - and a default judgment will follow you. Unfortunately, Recordon says that many people don't understand how the process works and have a really short-sided view of their financial situation. He explained:
For example, let's say that I'm a single guy, 25 years old and unemployed. At this point, I might say, "What can they do to me?" Well that's true right now, I have no money, I have no assets - but I'll eventually get a job. So, within the next three, four or five years, I'm going to be working and all of a sudden I'm going to see a large wage attachment and lose a percentage of my income to it."
Certain Types of Income Are Protected From Creditors
Recordon told us that another thing that people don't realize is that certain types of income are protected from creditors. He continued, "For example, if you have one account and your Social Security or disability payments go into that account, creditors can't get at it. Unfortunately, that's not what creditors tell the unsuspecting debtor. They tell the debtor they can access it, they scare him/her, the debtor starts to panic and pays off a debt they may never have had to pay if they knew what their rights were. As a matter of fact, any city, county, state or federal government assistance programs are exempt."
Are You Being Harassed by Debt Collectors?
If you're being harassed by a debt collection company, contact an attorney to discuss your situation and evaluate your options. Consultations are free, without obligation and are strictly confidential. Click here to speak with an experienced debtor's right collection lawyer who understands the Fair Debt Collection Practices Act (FDCPA).