If a creditor wins a lawsuit against you in court, the judge will issue a judgment in its favor, and the court will enter the judgment soon afterward. A creditor may receive a judgment against a debtor who fails to respond to the lawsuit, which is known as a default judgment. In other cases, a creditor may receive a judgment in its favor after the parties have litigated the case. The judge may rule in the creditor’s favor on a summary judgment motion, or the creditor may prevail after a full trial.
You will receive a copy of the judgment from the court. It is important to understand exactly what you owe, which may not be the exact amount that the creditor initially sought. Sometimes a judge will rule for a creditor on only some issues or find that a valid defense reduces your liability.
Understanding Your Obligations Under the Judgment
First, the judgment will order you to pay back the debt or a certain amount of it to the creditor. In addition to the debt, the court will calculate the interest due to the creditor. Interest can consist of both pre-judgment and post-judgment interest. Pre-judgment interest is based on the percentage of interest under the loan and the time since you agreed on the loan. For example, you might have agreed on a $20,000 loan with 10% annual interest. If the creditor gets a judgment a year later, the court likely would award $2,000 to the creditor as pre-judgment interest. Post-judgment interest accumulates between the date that the judgment is entered and the date that the debtor pays the judgment. Each state determines post-judgment interest differently, but it is usually in the area of around 10%.
Possible Debtor Obligations
The debt that the court finds that the debtor owes (which may or may not be the same as what the creditor alleged that the debtor owes)
Pre- and post-judgment interest
Court costs also form part of the judgment. These can vary dramatically depending on the extent to which the parties litigated the case. Court costs can include filing fees and fees for service of process on the defendant, as well as discovery costs. If you did not litigate your case extensively, court costs will be relatively low. (As a result, if you believe that you have no real defense to a collections lawsuit upon consulting with an attorney, you may prefer to let the court enter a default judgment.)
In some cases, the judgment will include attorneys’ fees, but this may depend on your initial agreement with the lender. Some states award attorneys’ fees to a creditor automatically, even if the parties made no arrangement for fees.
Enforcement of Judgments
If you are judgment proof, you should be aware that a judgment for a creditor can last for a long time, even decades in some cases. A creditor sometimes can renew a judgment as many times as they choose, so it may never disappear. You might wonder what happens if a debtor moves to a new state or if they entered into the contract with the creditor in a different state from their home state. In other situations, a debtor may have substantial assets in a different state. A creditor would need to register its judgment in the debtor’s home state or in the state where the assets are located to enforce the judgment and seize the assets there. This is usually not a challenging or contested process, since the Full Faith and Credit Clause of the Constitution generally requires each state to honor judgments lawfully entered in other states. You should expect that a creditor will have access to any of your non-exempt assets and income, regardless of the state in which they are held.