What Debt Collectors Do If You Cannot Pay

Bankruptcy Advice
This article discusses the potential consequences of one’s failure to pay back his or her debts.

Unless your ultimate dream is to live a self-sufficient life off the grid in a yurt, you’ll likely end up carrying a few debts. Debt itself isn’t inherently bad. Without debt in the form of a mortgage, for example, many people could never buy a home. Auto loans, home equity loans and credit card balances are all examples of debts that, when managed wisely, can make your life easier. Unfortunately, not everyone can or will pay up when the bill comes due. If your lender’s standard debt recovery methods prove futile, your unpaid balance will eventually fall into the hands of debt collectors. Debt collectors have a variety of harrowing methods at their disposal to ensure that you pay what you owe–whether you want to or not.

Debt Collection Lawsuit

One of the most common mistakes debtors make is ignoring a court summons from a collection agency. In many cases, if you respond to the summons and show up in court, the collection agency will either withdraw the case or simply fail to appear–leaving you victorious. Keep in mind that the collection agency likely has numerous lawsuits in progress around the country. Sending a representative to each court date is expensive and sometimes impossible. In addition, debt collectors often lack documentation proving that the debt they claim you owe is even valid. If you don’t appear in court, however, the collection agency wins its case by default and receives a legal judgment against you. The judgment gives the collector the ability to seize payment from you without your consent.

Wage Garnishment

A legal judgment gives a debt collector the right to request a writ of execution from the court. The company can then serve the writ of execution on your employer. This forces your employer to set aside a portion of your wages from each paycheck to send to the collection agency. The garnishment process will continue until either the judgment is paid in full or you find a new employer. Finding a new employer doesn’t save you from garnishment permanently. As soon as the collection agency finds out where you are working, it will force your new employer to garnish your wages as well.

Bank Levy

Similar to wage garnishment, a bank levy occurs when a debt collector uses its legal judgment to serve your bank a writ of execution. This forces the bank to freeze your accounts. You’ll have a grace period in which to contest the levy or claim the funds in your bank account that are exempt from seizure, such as Social Security payments, child support, or alimony. The grace period to contest a bank levy varies by state. As soon as the grace period expires, your bank will turn over all available funds in your account to the collection agency. If there is not enough money in your bank account to cover the amount you owe, the collection agency may repeat the process periodically until it recovers the full amount.

Property Lien

Just because a collection agency has a judgment against you, that does not automatically mean that the company can garnish your wages or levy your bank accounts. If, for example, you are unemployed, you have no wages for a debt collector to seize. Similarly, if your bank account contains only exempt funds, a bank levy isn’t possible. When a collection agency cannot enforce a judgment any other way, the company may opt to place a lien against property you own. A lien gives the collector the right to seize and sell the property as long as it pays off any additional lien holders. If, for example, a collection agency used a property lien to foreclose on your home, it would have to pay off your remaining mortgage balance with the sale proceeds before applying the remainder to your debt.

Although the consequences for not paying your delinquent debts may seem dire, not all debt collectors resort to lawsuits. Lawsuits are expensive and time-consuming. As a result, collection agencies generally reserve legal action for particularly large debts. Your unpaid cell phone bill or those library fines you ignored may end up in collections, but they aren’t likely to land you in front of a judge. Even if you owe a significant amount, most collection agencies would rather work out a payment plan with you than go through the process of obtaining and enforcing a judgment.