When you consistently fail to repay your debts, you inevitably face consequences. The good news, though, is that the days of debtors’ prisons are long gone. With a few narrow exceptions, you cannot be thrown in jail for missing your payments. However, you can still face civil liability. Here’s what that means.
What is Civil Liability?
As opposed to criminal liability – which can result in a prison sentence, fines, and a criminal record – civil liability typically revolves around a monetary issue (or at least, an issue that can be compensated monetarily). The penalty for civil liability is money damages, that is, a judge will enter a judgment against you demanding that you take certain actions to repay your opposing party.
Can I be held Liable for not Paying my Debts?
In Short, The Answer is Yes
The reality, though, is that it is generally more complicated than this. There are certain actions a creditor must follow in order to file a viable lawsuit against you to collect your unpaid balances.
The Statute of Limitations
First and foremost, your creditors don’t just have an indefinite amount of time to come after you. Each state imposes a “statute of limitations,” a period during which a creditor or other party can file a lawsuit. Once that period expires, a party can still file a lawsuit, but it’s likely a judge will throw it out.
In debt collections cases, many states apply a three-year statute of limitations. In many cases, the statute starts to “run” on the date of your first missed payment – the date you breached your contractual agreement with your creditor to continue paying.
The FDCPA and The Mini Miranda Notice
Before a creditor can sue you, they must first attempt to collect your debt outside of the adversarial process. This is generally done by way of a demand letter. A critical requirement the Fair Debt Collections Practices Act, or FDCPA, imposes is the “1692g” notice, known as the “mini Miranda” notice. The notice is a statement clearly informing you of your right to dispute the debt. Your creditor then must wait 30 days before resuming collections efforts. If you dispute the validity of your debt within that time period, your creditor is obligated to send you a written verification. Until it does so, your creditor can’t sue you.
Before seriously considering filing a lawsuit, your creditor will likely continue to try to collect the debt by sending you periodic communications. At some point, your creditor will turn your account over to a third-party collections company, who will then restart the entire collections process.
When a Creditor may want to Sue You
Sometimes, a creditor may even determine you don’t have enough property to satisfy a civil judgment, so it will simply abandon and write off your account. This is known as a situation in which you – the consumer – are “judgment proof,” and most companies won’t want to bother with the expense and effort of pursuing legal action when they stand to gain little. However, you shouldn’t count on this!
If you have substantial assets – whether personal or business assets – you might be an attractive target for your creditors. However, you should never, ever hide your assets to dodge a judgment. It is unethical and could give rise to a separate legal action. Not to mention, it’s difficult to know whether a creditor will deem a lawsuit worthwhile.
It’s also important to consider the size of your debt: Many creditors won’t sue to collect a small debt. But if you owe multiple thousands of dollars, the likelihood that you’ll be sued increases.
What Happens if my Creditors win a Judgment Against me?
Even if your creditor sues you and wins a judgment against you, it cannot immediately begin to garnish your wages, pursue foreclosure on your home, or repossess your vehicle. Your creditor first must “attach” its judgment to your property. This is done by “domesticating” or validating its judgment in your jurisdiction so that it has the authority to execute it. Your creditor then must work with the local Sheriff’s Department to locate and attach the judgment to your property. Not to mention, you will be given a certain number of days (generally around 30) to appeal the judgment, so your creditor cannot initiate its collections efforts until that period has expired.
What do I do if I’m Sued?
Whether you believe its allegations are valid or not, if a creditor sues you, do NOT ignore the lawsuit! If you fail to respond within the required timeframe, the law will presume that you’ve admitted all the allegations in the suit and your creditor will automatically be awarded a judgment against you. As such, it’s important to act quickly to respond, so engage an attorney immediately to help you defend the allegations. Once you’ve responded, your attorney can advise you on your options moving forward: Settling, negotiating or fighting back.
Preserving Your Rights
No matter your situation, it’s critical to ensure that you’re taking every step necessary to protect and defend your rights – so don’t sit on a lawsuit hoping it will simply go away. It won’t! Respond as adequately as you can and accept the guidance of an attorney you trust as you move forward through the process.