Experiencing financial hardship can be overwhelming, and falling behind on debt payments can compound the stress. If a creditor or lender threatens legal action, the situation can feel even more daunting. Unfortunately, even if you are unable to repay what you owe, losing a lawsuit can have significant consequences. You may be wondering: what happens if you lose a lawsuit and don’t pay? The reality is that there are still options available for creditors to pursue payment, even if you are unable to provide it upfront. In this article, we will explore the potential alternatives that the court can pursue if you are unable to pay your debts following a lawsuit.
Will I Go To Jail If I Can’t Pay My Debts?
The thought of going to jail for unpaid debts can be a terrifying prospect for many. However, it’s important to note that debtor’s prison, a practice where individuals unable to repay debts were incarcerated, has been abolished in most states. So, if you’re unable to pay a debt or lose a lawsuit, you likely won’t be sent to prison.
Exceptions to this rule include tax fraud and missed child support payments. If you’re found guilty of willfully misleading the government or fall behind on child support payments, jail time is a possibility. Depending on the state and your specific circumstances, you could be sentenced to between six months and two years.
Wage Garnishment
While jail time may not be a concern, there are still other ways that the court or creditor can seek payment. One of the most common methods is through wage garnishment. This is where a portion of your income is taken directly from your paycheck and sent to the creditor until the debt is fully paid off.
Property Liens
If you own a valuable property such as a home, the court may allow your creditor to place a lien on it. This means that you will have to pay off your debt before selling or refinancing your property. If you are unable to pay off your debt, you may be forced to file for bankruptcy or risk losing your property. It’s important to note that a lien can only be placed on property in the county where the judgment was granted.
Bank Levies
Another way that creditors may seek payment is through bank levies. If you have a substantial amount of money in your bank account, a creditor may obtain a court order allowing them to freeze your account and access the funds until the debt is paid in full. If you do not dispute the levy or your dispute is unsuccessful, the creditor may also be able to take whatever money is already in that account.
Understanding the Statute of Limitations for Collecting Judgments
If you’ve lost a lawsuit and are unable to pay the resulting judgment, you may be wondering how long your creditor has to collect the debt. While the statute of limitations varies by state, most have a time limit on how long creditors can attempt to collect. However, some states allow for “judgment renewal,” which resets the clock on the statute of limitations.
For example, in Texas, a judgment is considered “dormant” after ten years, but it can be renewed before the time frame is up. Even after a judgment is dormant, it can usually be “revived.” It’s essential to know your state’s laws regarding the statute of limitations for collecting judgments, as they vary widely.
Exploring Alternatives When You Can’t Pay Your Debts
If you’ve lost a lawsuit and are unable to pay the resulting judgment, there are alternatives you can consider to manage your debt. Here are a few options to explore based on your situation:
What To Do If You Can Pay
If you’re able to pay the judgment, it’s best to do so and avoid potential consequences. Contact your creditor to set up a payment plan or pay the debt in full if possible.
What To Do If You Can’t Pay
If you’re physically unable to pay back what you owe, doing nothing is an option, but it may further damage your credit. You can also attempt to negotiate a debt settlement with your creditor, but they may not be willing to negotiate since they already have a judgment against you. Filing for Chapter 7 bankruptcy is another option to consider, especially if you make below a certain amount. However, it’s essential to fully understand the process and potential consequences before making a decision. Bankruptcy can help some individuals, but it can also have devastating effects on others.
Ultimately, it’s important to explore your options and communicate with your creditors to avoid further legal action. Seeking guidance from a financial professional or attorney can also help you navigate your debt and make informed decisions about your financial future.