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Stipulated judgments: the 'secret' savior

Being sued for debt? This is one option you should know about

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You can try to run from those you owe, but if they sue, you can't hide. However, if you think your options for resolution evaporate once you're served those grim papers, think again. You may have one remaining procedure that can offset the more brutal aspects of being sued. It's called a stipulated judgment, and if a trial is looming, you need to know what it is and how it can help. Stipulated judgments: the "secret" savior

Stipulated judgments (also called "stipulated settlements with judgment withheld") are last-ditch payment arrangements made with litigating creditors. Even if you've not paid on a credit card or other unsecured account for a long time, you may be able to work out a new deal and a fresh payment plan in court.

How stipulated judgments work
First, don't be put off by the word "stipulated." It is just a lawyer's term that emphasizes that an agreement is formal and binding.

In brief, here's how a stipulated judgment works: You ask -- or have your lawyer ask -- the judge in your case to have the creditor consent to affordable monthly payments instead of collecting through a wage garnishment, lien or levy. If the suing creditor accepts the stipulated judgment, you make payments directly to the creditor or its collection service until the debt is cleared. This prevents a glaring judgment notice from appearing on your credit report, in addition to protecting you from the embarrassment of your employer knowing about your money problems and having up to 25 percent of your net wages withheld.

Judgments can bring relief
The relief stipulated judgments can bring to distressed debtors is remarkable. John Wisniewski of Maitland, Fla., had a credit card debt of $4,700 that he was unable to pay. "My wife had lost her job, so for a long time, we could barely make rent and groceries," says Wisniewski.

He tried to negotiate with Capital One, his credit card company, but "they didn't want to work out anything with me. They wanted $400 per month, and I couldn't afford that." His attorney told him about stipulated judgment plans, which Wisniewski had never heard of before. The plan was accepted, and he now pays just $25 per month. Better yet, Capital One agreed to eliminate interest altogether; a far cry from the 30 percent APR he was being charged. All in all, says Wisniewski, "it's been a positive experience."

How often are these last-minute plans accepted? Most of the time, says bankruptcy attorney Walter F. Benenati of Orlando, Fla., who specializes in credit card lawsuit defense. "As long as both sides agree to settle, a stipulated judgment is usually accepted."

"We encourage stipulated judgments throughout the entire process," says Matthew Towson, senior manager, community affairs and media relations for Discover, who explains that they benefit both the cardholder and the company because court costs and attorneys' fees are usually avoided. He urges early intervention, though, pointing out that their customer assistance team will work with customers who do become delinquent to try to bring their accounts current again.

We encourage stipulated judgments throughout the entire process.

-- Matthew Towson
Discover card

Warnings and downsides
Of course, stipulated judgments aren't panaceas. Though original creditors do tend to be agreeable to them, collection agencies can be more reluctant. You must be committed to following the payment arrangement, and behave in a way that may be unnatural: by following through with official procedures and facing your financial troubles head-on.

Many distressed borrowers react by avoiding problems. Robert Hild, CEO of AXZAS, a nationwide process server management company, reports that an astonishing 95 percent of those served never file a response to the summons and complaint or appear in court. "They know they owe the debt, so they throw their hands up in the air," says Hild. "They want to ignore it. But in many cases, the account has already been charged off, and the creditor may be willing to bend."

If you don't respond or show up, you forfeit your prospect for a final reprieve. The judge automatically grants a default judgment to the creditor who then may deploy all available post-judgment collection methods. That's why it's vital you pore over the legal documents, follow the instructions precisely and meet your court date.

Also, if you get a stipulated judgment, you must make every payment in full and on time. "If you miss a payment, the creditor or law firm will record the judgment and attempt to collect on the full amount," warns Benenati.

To arrange a stipulated judgment
Before the matter goes to court, make whatever payments you can, even if the creditor sends them back because they're too small or you've waited too long. This shows you are trying to be responsible, and your good-faith effort will be evident to the judge. Determine how much you can afford to pay on a stipulated judgment plan by reviewing your budget carefully. You don't want to promise more than you can realistically manage if the judgment is accepted.

Immediately answer the summons and complaint that the process server delivers, and make a note of when you are to appear in court. Then, choose self-representation or hire a lawyer.

If you're doing it yourself, at least get a good legal self-help book. Contact the creditor's attorney prior to the court date and attempt to work out a payment plan -- they may drop the case and accept your offer. If they don't, you'll be bargaining in the courtroom. Know that besides asking for affordable monthly payments, you may also request debt reduction, interest elimination, a specific date you'd like to begin and the day of the month you can pay. Portions of your appeal may be denied, but it's worth trying.

Prefer to hire an attorney? It may be a wise investment. Lawyers who do this type of work are skilled negotiators and already have relationships with creditor law firms. According to Benenati, just your presence in the courtroom can make winning harder. You may have to testify, and the opposing council can grill you about your debt. With an attorney, you don't even have to be in the courtroom. Not many lawyers specialize in such defense exclusively, though, and their price can be prohibitive. "It is only worthwhile when the attorney charges low flat fees like $400 to $500," Benenati says.

After the judgment
In the event the stipulated judgment is accepted, you begin paying on the agreed-upon date. Creditors typically won't report these monthly payments to the credit reporting bureaus, so pay more when possible -- your credit report will improve when a zero balance is recorded. Maintain organized records of cashed checks too, as errors can happen. 

If you haven't been sued for an overdue balance, be warned, says Hild. Due to the recession, borrowers have had less means to pay, so proceedings for delinquent accounts have seen a slight but temporary slowdown. "As the economy recovers, we predict a boom in lawsuits for debt.'' Therefore, if you're struggling with liabilities, confront the problem swiftly and directly. You may be able to secure a financial deal to satisfy all parties and avert potential problems.

See related: Credit card arbitration: What it is, how it works, Ignoring credit card debt can lead to garnished wages, Wage garnishment rules of engagement, Take these steps to avoid wage garnishment

Published: November 11, 2009


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