Welcome to our Q&A on consumer protection issues. The entire video is above, and the transcript is below.
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John Watts ================
Hello. My name is John Watts. I want to welcome you to our webinar where we talk about consumer protection questions. Today is August 21st. As we do typically every Friday, we’re going to answer some questions. I have 5 questions. One of which is on foreclosure and then 4 of the questions relate to judgments. We’ve been getting a lot of questions about judgments. We’ll go ahead and handle those this week.
Just a little quick reminder of how we do this. These are questions that come from you, come from people that call our firm. Some people leave us a comment on our website, Alabama Consumer. If you live in Alabama, you can call our firm 205-879-2447. You can also leave a comment or send a private message here on Youtube. However you want to get the question to us, that’s fine. We just keep track of what questions we’ve received during the week and then we try to answer those on Friday.
Our first question, and this is related to foreclosure, what is a deed in lieu?
Let’s take those words. A deed is just the ownership, you might say, to your property. Then, we say in lieu of or instead of, instead of what? Well, instead of a foreclosure. It’s as if I take my deed and I say to the mortgage company, “You know what? Instead of you foreclosing and you taking the deed, how about I just hand it to you?” You might think of this, some on a car context, it’s like instead of a repossession, you voluntarily take your car to the dealership or to the bank.
There are different ways that this can impact you as far as credit reporting, deficiency. Deficiency is as if you have this much and the bank sells property for this much. Do you owe that difference? Sometimes, in a deed in lieu, we make an agreement and it’s all going to be in writing. You got to have all this written down. What if they come after you for deficiency, what will they put on the credit reporting? Sometimes, they call it a “foreclosure”.
You state to know exactly what the deal is before you decide if this is a good approach. This is really the broad level or top levels call loss mitigation. Underneath loss mitigation, we go down and we have loan modification, forbearance, short sell, other things including deed in lieu of foreclosure.
If you’re talking to your mortgage company or maybe your real estate agent says, “You can go a deed in lieu.” Just to understand what their talking about, is you hand the mortgage company the deed in lieu of instead of them foreclosing. Sometimes that’s appropriate, sometimes there are whole lot better options than that, but that is one option for you.
Alright. Our next question is, will bankruptcy override a judgment on my credit report?
Which hurts me the most?
Well, let me take that a little bit out of order. Is it better to have a bankruptcy or better to have a judgment? It depends. Both of those are negative on your credit report. We look at the timing. Generally, anything that happens bad here, the next it has the most impact. The next day, it starts to slowly go down. Really, I mean like the next month or the next 6 months or next year.
Here’s the worse that happens and then it starts declining because … That makes sense if you think about it. If somebody failed to make a payment, would you rather that have been 6 years ago or 6 days ago if they’re wanting you to loan them money? We do look at the timing of it. Generally, a bankruptcy and I assume, what’s meant here is that Chapter 7 Bankruptcy. It just wipes it out. It’s also called a “straight bankruptcy”.
A bankruptcy will normally wipe out the judgment so you do not owe the judgment anymore. In terms of which is worse, let me give you this example. If somebody says, “I think I’m gonna have some judgment against me. I’ll just wait until I get the judgments that I’m pretty sure of it coming. And so, it happens now and then I’ll file bankruptcy.” That’s fine, but what if you could file bankruptcy before the judgments? Well see if you do that, a bankruptcy stops a lawsuit and there are exceptions on these but normally that happens.
If that debt is wiped out in the Chapter 7, then there is no judgment. Sometimes it’s a timing issue. Do I go ahead, pull the trigger, file bankruptcy? I think bankruptcy is very rarely appropriate but it can be appropriate. Do I do that now and then I don’t ever have a judgment or do I get a judgment and then after the judgment, I’ve got to file bankruptcy?
In a perfect world, we would rather just have a bankruptcy and no judgments but if you have a judgment, then a bankruptcy can certainly help by getting rid of that debt. As far as the impact on your credit score, it just really depends. There’s a lot of factors. Are you discharging a car loan judgment? That might have more meaning to an auto dealer or auto finance company. Then, if we’re talking about a $5,000 medical bill or debt. It just really depends.
The first part of this question, will bankruptcy override a judgment? I assume, what was meant there is if I have a judgment, $5,000 and then I filed bankruptcy, does that make this go away? It doesn’t make the actual judgment go away, but what it does is it mean you owe $0 on that judgment. That “debt”, that liability is gone.
You have to be careful. There’s a judgment and there’s a lean put on your property. That lean doesn’t just automatically go away because you filed bankruptcy. Sometimes you have to do something in bankruptcy court to “avoiding the lean”
or getting rid of the lean. That gets into some complicated stuff but just to understand that normally, a Chapter 7 bankruptcy wipe out a typical judgment. A bankruptcy and a judgment are bad on your credit report.
I don’t know that it’s necessarily worse if you have, let’s say, 3 or 4 judgments, and then you file a bankruptcy. Yes, it’s bad to file a bankruptcy but getting rid of those judgments can be very helpful, too. Anyways, lots of questions to ask if you sit down with a bankruptcy attorney about, what will happen with this judgments? What happens to any leans? What does it do to my credit report? I hope this is at least giving you some information about this.
Alright. Our next question is how long can somebody collect on a judgment?
I’ll give you some general rules. In Alabama, if a judgment happens, let’s say, in 2015, they can collect on that really for about 10 years. Even after that, they can do something called renewing a judgment before another 10 years. Sometimes, we get people that call us and they say, “Hey, there was a judgment against me in 2007. That’s 8 years ago because it’s now 2015. I think statue limitations run on that.”
Statue limitation is how long the soon I have to sue you. Here’s the thing we did wrong: broke a contract, run a red light, whatever it is. We did something wrong. There’s a period of time to sue us. That’s statue limitation. But once that sue is filed, and if it was filed within the right time, then we don’t care about statue limitation anymore.
That law suit could take 20 years. Very unusual but it could take 20 years. That’s fine. They get a judgment. Now, they can collect as long as that judgment is valid. Just to understand, statue limitation, because we get a lot of these questions, that’s the time period to sue in the first place but then after that, statue limitation does not apply.
Our next question is, do judgments really double every 6 years or does it just seem that way with interest?
Let’s start about, we get a judgment. From that point forward, that judgment is making interest. It depends on what the interest rate is. It used to commonly be 12%. Now, it’s typically a little bit lower than that but if somebody sued you on a contract and they can prove what the interest rate of that contract is, it can be higher than that. Imagine you have a credit card at 29% interest and they get a judgment, it could be a really higher rate of interest. They don’t normally ask for that high but that’s possible.
Do judgments really double in 6 years? There’s no law that says, “Every 6 years, you will double.” It’s just that interest. How do we figure out how quickly something will grow? There’s a rule of thumb called the “rule of 72”. I just say, you take the interest rate whether we’re talking about an investment, a debt, whatever we’re talking about.
You divide that into 72. If it’s 12% interest, divide it into 72, 6. In about 6 years, that will double. Let’s say it’s $5,000 judgment, 6 years later, it’s $10,000. Then another 6 years, that $10,000 becomes $20,000. Another 6 years, that $20,000 becomes $40,000. It just keeps growing and growing and growing.
That’s the power of interest.
Now, if it’s 6% interest, it’s going to take 12 years to double. If it’s 36%, it’s going to take about 2 years to double. It’s just the matter of that interest, where people can get burned on this is maybe they allowed the default judgment to happen. $5,000 and that was 6 years ago. “Well, yeah, I think I need to pay this. I’ll go pay him something less than $5,000.” The collection lawyer goes, “Wait a minute. It’s now $10,000.” You go, “No, no, no. It can’t be.” Yeah, there’s interest. That interest accrues. Be very careful about that.
If you’re in a garnishment situation, here’s the judgment and then they’re garnishing your way just as you go forward in time, you want to make sure that you’re considering what is the impact of the interest. Sometimes, people give … We’ll use our $5,000 example. Now, they’ve garnished me for $5,000, I go, “Good. I’m done.” Then, 4 years later, I get a nasty letter from the collection lawyer saying, “Hey, you owe us $2,000.” Like, “What are you talking about? It was $5,000 judgment. You garnished $5,000.” They go, “Yes, but you forgot about the interest.” You just need to be careful with this.
Our next question is … I think, actually it’s our last question. Can I be garnished in a state other than where the judgment was entered?
I’ll give you a typical example. Let’s say that you’re sued in Georgia. They meant the car wreck, it’s for an old credit card when you live there, whatever it is. They get the $5,000 judgment against you. Now, you live in Alabama. Can they come here to Alabama to stick their hand out and say, “I want money from your bank account or your wages.”
Well, they can. They have to go through a few steps first. Let’s take that example. You’re in Georgia and I don’t know what the rules in Georgia are whether they can do wage garnishment, bank garnishment, assuming that they can. They get a judgment against you in Georgia, then they can garnish your wages in Georgia and hit your buttons. That’s not valid here. They have to domesticate the judgment.
What they do is they say, “Hey. Alabama court, over here in Georgia, we have a judgment and now we’re bringing that here for you in essence to bless it.”, or to say, “Yes. This is now valid in Alabama.” It’s usually not a real in depth process. There are some defenses, some arguments you can make. Maybe you didn’t get served over here. It gets a little complicated. Do you get and fight that over here in Georgia or do you fight it here in Alabama? Different strategies base on exactly what has happened.
The point is, if they get that judgment out of state, they can if they jump through the proper hoops, go through the procedures, they can garnish that here in Alabama. We see this sometimes for thousand dollar things. We’ve seen it for seven-figured judgments where they’re coming after you from another state. I’ll give you some quick thoughts.
If you’re in that situation, I would definitely recommend you go figure out what happened in that other state. Because sometimes, people as soon as they get this letter or this memo from HR, and it says, “You’re being garnished.” “What? I’ve never been sued.” Then, they find out it’s something in Georgia and they call a Georgia guy, “Yeah, yeah, yeah. You were sued 6 years ago. We got a judgment against you.” You’re like, “I’ve never been sued in Georgia. I never got served with papers.” You have to look at that to make sure it’s a valid judgment. Assuming it’s a valid judgment, then yes, they can take it from Georgia to Alabama, vice versa.
Those are the questions for today. By a way of summary, we talked about what is a deed in lieu, a foreclosure. Will a bankruptcy override a judgment on my credit report and which will hurt me or affect me the most? How long does soon I have to collect on a judgment? Do judgments double every 6 years or is it just the interest? Can they garnish in state other than where the judgment is located?
Hope that that’s been helpful to you. If you will, just leave us a comment below or you go to our website, Alabama Consumer. If you’re in Alabama, you can call us 205-879-2447. Ask to speak to Carolyn and she can definitely help you out. Also, if you just have a question, she can pass that along to me. In what we do, just so I can explain about calling Carolyn, when you call the firm or reception will answer, just ask for Carolyn. She does all of our phone work so we try to protect Carolyn from having to deal with court issues and drafting documents and things like that so that she is completely available for talking on the phone whether that’s a potential client or an existing client. We have clients from 5 years ago that come back to us. Whatever the situation is, she’s your first point of contact. Then, she’ll set you up with a phone call or an in-person meeting with me if that’s appropriate.
Just let us know if we can help you in anyway. I appreciate you watching this. Have a great day. Bye bye.