What Happens If a Creditor Wins a Debt Lawsuit
Here, learn the answers to some common questions about debt lawsuits, such as how a debtor can challenge the judgment, what happens after the judgment is entered, and the basics of how the collection process works.
Can the judgment be overturned if I didn't know about the lawsuit or the hearing?
If you did not attend the hearing, the court likely entered what is called a "default judgment" against you. There are several ways you can try to get a default judgment reversed. These will often not make the lawsuit go away or wipe away the debt completely. But, they can get you another chance to have your case heard so that you can attend.
If the judgment was a default judgment, you can file a motion to set aside the default judgment. How much time you have to file a motion to set aside a default judgment varies based on the court in which your case was heard.
- If your case was in justice court, where most collection actions now occur, you have only 14 days after the judgment was signed to file a motion to set aside the default judgment or any other post-trial motion.
- If your case was in county or district court, you have 30 days from the date of the judgment to file a motion to set aside a default judgment or similar post-trial motion.
Read more about How to Set Aside a Default Judgment.
If the judgment was a default judgment, and you have missed the window for a motion to set aside or appeal, you may still be able to file what is called a "Bill of Review." A bill of review is very difficult to win, and it is usually filed when a defendant has significant proof that they were never served in the lawsuit. It is strongly recommended that you seek an attorney to assist you with a bill of review.
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I attended the hearing, but I lost. Can I appeal?
If your case was not a default judgment, you might be able to file a motion for new trial. As with the motion to set aside a default judgment above, your time to request a new trial varies based on the court in which your case was heard:
- If your case was in justice court, where most collection actions now occur, you have only 14 days after the judgment was signed to file a motion for new trial.
- If your case was in county or district court, you have 30 days from the date of the judgment to file a motion for new trial.
If you want to appeal the judgment, the process also differs based on which court your case is in.
- For cases in justice court, you have 21 days from the date of the judgment to appeal. If you filed a post-trial motion (like a motion for new trial), you have 21 days from the date the post-judgment motion is denied to file your appeal. An appeal from a justice court decision goes to the county court (or, in some counties, to the district court).
- For county and district court cases, you have 30 days from the judgment to file an appeal. If you filed a motion for new trial before the appeal, you have 90 days from the date of the judgment to file your appeal.
Read more about Appealing a Judgment in Texas. Appeals are very complex, and failure to follow the Texas Rules of Civil Procedure and the Texas Rules of Appellate Procedure may result in the dismissal of your appeal. It is strongly recommended that you seek an attorney to assist you if you plan to appeal.
How will a creditor find my assets?
After a creditor gets a judgment, the creditor can send what is called "post-judgment discovery" to the debtor. The creditor must wait at least 30 days from the judgment, but they can send it any time after that. If you have a judgment against you and receive post-judgment discovery, it is really important that you answer. If you do not answer, you risk having protected money or property taken by mistake. Usually, you have 30 days to answer any post-judgment discovery.
There are several different types of discovery that a creditor can send:
- Interrogatories are questions to be answered and usually ask you for information about your assets. You will be required to disclose bank account and other financial information. These must be answered truthfully and be signed, but if you do not know the answer, it is ok to say that.
- Requests for Admissions are statements that you must admit if they are true and deny if they are false. If you do not answer these questions, the judge can deem them admitted and true.
- Requests for Production are documents that must be sent to the creditor. These can be things such as bank statements, paystubs, and other documents relating to your property.
How soon will the debt be collected?
A judgment is valid for 10 years after it is issued, and it can be enforced at any time within that time period. There are ways for a creditor to extend a judgment past that time, so if properly renewed, a creditor can seek to enforce the judgment and collect for many years even after the initial ten-year window.
How is the debt I owe going to be collected?
The two most common ways creditors collect judgments are the appointment of a "turnover receiver" and "writs of garnishment."
A turnover receiver is a third-party appointed by the court to find and take possession of your property to pay the debt to the creditor. Receivers do not work for the creditor directly, but rather they are officers of the court. Receiverships are becoming more popular among creditors because a receiver can access multiple accounts and property in one case, rather than having to do each account separately like in a garnishment or other attachment. Read more about Turnover Receivers and Debt Collection.
In a garnishment, a creditor asks the court to notify your bank (or your employer, in the case of child support debt or federal debt like taxes or student loans) of the debt you owe. Your bank will usually freeze access to your account immediately once it receives this writ from the court. Read more about Garnishment in Debt Collection.
What if I have no assets or only protected assets?
If you have no assets, or only protected (or "exempt) assets like social security, veteran's benefits, you may be "judgment proof."
Read more about Property That Is Protected from Creditors and What "Judgment Proof" Means.
In this situation, it is very important that you communicate this to the creditor. This can be done when you respond to post-judgment discovery or by sending a signed and notarized letter, stating that you have no nonexempt assets to collect. If you do not let the creditor know, you are at risk of having the protected money or property wrongfully frozen or taken.
What steps can I take now to protect my assets from being collected?
There are steps you can take to protect exempt assets, even after a lawsuit is filed. The best way to protect exempt income (like social security, veteran's benefits, etc) is to keep those funds in separate bank accounts from any other nonexempt income. This makes it easy to prove the source of the funds.
If your accounts only contain exempt income, you can also file what is called an anti-garnishment letter with the bank that can keep your account from being frozen for collections.
You should also make sure your exempt income like social security is directly deposited into the bank (as opposed to a paper check that you deposit). If your exempt income is directly deposited into your bank account, the bank must protect two months' worth of those benefits and allow you access to that amount, even if other nonexempt funds in your account are frozen.
Note: You should not try to transfer or sell nonexempt assets in order to avoid collection. You can be sued for hiding or fraudulently transferring property to avoid paying a debt.
Is this judgment going to show up on my credit report?
Yes, a judgment can appear on your credit report, which will usually negatively affect your credit. In Texas, a judgment can stay on your credit report for as long as it is valid, up to ten years (or longer if it is renewed). Some credit reporting agencies may take a judgment off a credit report after seven years, but just because it does not show up on your credit report does not mean that the judgment has gone away or expired.
Exempt Property in Debt Collection: Forms and Instructions
Property That Can Be Protected from Judgment CreditorsThis article discusses the types of property that are protected (or "exempt") from being taken by creditors to pay debt judgments.
Garnishment in Debt CollectionThis article explains the basics of the garnishment process as a method for collecting debt after a judgment has been entered.
Turnover Receivers and Debt CollectionThis article explains receivership and how it is used to collect debts after a judgment has been entered.
Protect Your Social Security from GarnishmentThis article contains information on protecting your social security funds from garnishment.
My Bank Account Has Been Frozen: Now What?This article explains what to do when your bank account is frozen because of a debt collection judgment.
What "Judgment Proof" MeansThis article tells you what happens if you can't make payments on a debt and what kind of income is protected from creditors.