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Civil Judgment

Will a civil judgment affect my credit?

My question relates to a civil judgment and potential impact on my credit score. I was involved in an auto accident and have been sued by the other driver. My insurer has provided me with legal representation and the damages claimed by the plaintiff are small (the dispute centers primarily on the replacement value of his car and the max of the claim is around $5K) and would be well within my insurance coverage amount. I am planning to buy a home in the next few months so I am watching my credit score closely and was wondering if a civil judgment, that is paid by my insurance company, would have a negative impact on my credit score? Thanks.

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Bill's Answer
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Updated: Sep 23, 2014

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Highlights

  • Review how a civil judgment lowers your credit score.
  • Consult with an attorney, when facing a legal judgment.
  • Try to settle your case, before a judgment is entered against you.

Having a civil judgment against you will likely damage your credit score, but how much it will reduce your score greatly depends on the other items appearing on your credit report. For example, if you have numerous accounts reporting long positive payment histories, this single blemish on your report should not be detrimental to your credit profile. However, if you do not have a substantial positive credit history to balance out the negative impact of the judgment, your score could drop significantly.

I am glad that you have legal representation in this court case. You should work with your attorney to determine the best course of action available to you under the circumstances. Explain to your attorney that you are planning to purchase a home, and that you are worried about a judgment damaging your credit score. He may decide that settling the case, thereby preventing a judgment altogether, is the best course of action. Also, in some states, if a judgment is paid before it is recorded, it will never become part of the judgment records, and will therefore not appear on your credit report. Once a judgment is entered, you may be able to negotiate with the judgment creditor (the Plaintiff) to file a motion to have the judgment expunged as part of the settlement agreement. These last two options are much more difficult and time consuming that simply settling with the Plaintiff before the judgment is issued. Unless some fact that you do not mention in your question precludes settlement, I think you should discuss settlement options with your attorney before a judgment is entered against you. A judgment will almost certainly damage your credit score, so if a judgment can be avoided through a settlement, I would encourage you to consider that option.

To learn more about credit and credit scoring, visit the of Bills.com Credit Solutions and Resources page. See also the resources Collections Advice and Wage Garnishment and Liens & How to Resolve Them to learn more about your rights and liabilities.

Also, since you mention that you are planning to buy a home, you can read more information at the bills.com Home Purchase page.

I hope this information helps you Find. Learn & Save.

Best,

Bill

Bills.com

72 Comments

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  • NL
    Apr, 2014
    Niles
    I received a letter from a lawyer representing an Auto Insurance company as a surrogate to a person they insured stating they were seeking damages against me for a judgment filed in 2000. They have threatened to suspend my license if this judgment is not settled. Additionally, today a County Marshal delivered the same letter to my house. The name listed on the both documents had my maiden last name but different first name. I was never involved in an auto accident with the plaintiff. However they have my address information and social security number associated with this wrong name. I was thinking of writing a letter to the lawyer indicating that I believe this is a case of mistaken identity for I am not aware of this case, have never been served prior to today, appeared in court or received a judgment. Is this the best course of action to take. This is in Fulton County, Georgia
    0 Votes

    • BA
      Apr, 2014
      Bill
      Do not ignore this issue in hopes it will go away.

      Start by sending the lawyer a letter explaining you were never involved in an accident with the plaintiff, and list all of the names you have called yourself. Tell the lawyer just what you said here: You have no knowledge of this case, the plaintiff's injury, or who the correct defendant may be. Send the letter Certified Mail, return receipt requested, and keep a copy of the letter in the safe place.

      The lawyer will have one of three responses:
      1. Back off and apologize for the inconvenience
      2. Argue with you and say in effect, "No, we really think we found the right Jane Doe"
      3. Ignore your letter

      If you receive response No. 2 or No. 3, then consult with a lawyer who has civil litigation or consumer law experience immediately.

      0 Votes

  • RT
    May, 2013
    Rhonda
    In February 2012, a judgment was awarded to a creditor against me. I married in July 2012. Will the judgment affect my husband's ability to obtain an FHA or Rural Development loan?
    0 Votes

    • BA
      May, 2013
      Bill
      I assume your spouse resides in Louisiana. I also assume your spouse is the only applicant. In other words, you two are not applying jointly. If my assumptions are correct, allow me to rephrase your question to one a loan officer might ask: "In Louisiana, should I include an applicant's spouse's judgment in the applicant's debt-to-income ratio?"

      Let's start with the basics. Louisiana is a community property state. See the Louisiana Department of Justice Office of the Attorney General's Louisiana Laws on Community Property and Covenant Marriage (PDF) for a brief description of Louisiana marriage and divorce.

      Your question boils down to, "In Louisiana, can a creditor pursue a couple's community property if the debt is pre-marital?" For federal taxes, the answer is easy: The IRS can pursue either your separate property or 100% of the community property owned by you and your spouse.

      For judgment-creditors in Louisiana, the answer is found in Louisiana Civil Code article 2345, which states in part, "[a] separate or community obligation may be satisfied during the community property regime from community property and from the separate property of the spouse who incurred the obligation." The Louisiana Supreme Court interprets 2345 to include pre- and post-marital debts (Rayne State Bank & Trust Co. v. Fruge, 546 So. 2d 637, 640 (La. Ct. App. 1989) and Bagwell v. Bagwell, 698 So. 2d 746, 748 (La. Ct. App. 1997)).

      Getting back to your question, it is possible that a Louisiana loan officer will ask your husband to disclose your name and Social Security number for the purpose of obtaining a copy of your credit reports. The judgment will likely appear in the Public Information section of your credit reports. If the loan officer does so and has an understanding of Louisiana Civil Code article 2345, he or she will be obligated to include your judgment in your spouse's debt-to-income ratio calculations.
      0 Votes

  • SM
    May, 2012
    sanaa
    I was sued by a credit card company. My bank account was frozen and they took $1,000. I still owe about $1,800 and now I have judgment placed against me. This all happened in 2007. I want to pay it so it will come off my credit but I'm not sure of how to go about it. Should I offer to pay a reduced amount or pay the entire amount? Also should I call the lawyer or send a letter to inquire about paying?
    0 Votes

    • BA
      May, 2012
      Bill
      Four Bills.com reading assignments that will answer your questions:

      Please ask any follow-up questions you may have on the most appropriate page.

      0 Votes

  • TW
    Mar, 2012
    Terry
    I am applying for credit on a new car and there is a civil judgement for 16k on my credit score. If I remember correctly, this started in 2005 where I had to go to the hospital and had no insurance at the time. I didn't have money to pay so I ignored it. I received letters in the past but the name spelled on the letter does not match mine so I threw those away. Since this is in California, will this come off my credit report since its about 7 years, or will this stay on? Does statue of limitation apply to this?
    0 Votes

    • BA
      Mar, 2012
      Bill
      Under the FCRA, judgments are reported for 7 years or as long as they are valid, whichever is longer. A California judgment is valid for 10 years, and can be renewed. Therefore, a California judgment will appear on a person's credit report for 10 years.

      The statute of limitations, or lifetime of a California judgment is 10 years from the date the judgment was entered. As mentioned, a California judgment can be renewed. The judgment gives the judgment-creditor the right, under California law, to garnish your wages, place a lien on your property, or levy your bank accounts. Consult with a California lawyer to learn more details about your rights under California law.
      0 Votes

  • DP
    Feb, 2012
    Danielle
    Hi, I am trying right now to get per-approved for a mortgage loan with my husband under FHA. We have credit scores 670-720. The only thing I see as an issue is a judgement on 2/3 of my husband's credit reports. We actually settled and paid the company back before the judgement was filed. The account the judgement is for has a last payment date in early 2004, under the Fair Crediting act should this judgement be removed from his report because it is well past the 7 year mark for negative marks on the report?
    0 Votes

    • BA
      Feb, 2012
      Bill
      A judgment can usually stay on a credit report for as long as state law allows a judgment to run or for seven years, whichever is longer.

      If the judgment was paid, then that should be noted in the credit report. The usual language says "judgment satisfied, indicating that you had a judgment but no longer owe the money. If the information in the credit report is not correct then you can dispute the item. I don't believe that that one item will disqualify you from the FHA loan, especially when you can prove to the underwriter that the debt has been paid.
      0 Votes

    • DP
      May, 2012
      Danielle
      Thank you for your response to my initial question. We disputed the 2 bureaus that had the judgement still listed as unsatisfied. We supplied the settlement letter, the cashed checks w/d electronically, and the bank statements, stamped and showing the withdrawals they both marked it as satisfied at that point. We were approved for a home loan shortly after this. The only problem is literally 2 days later one of the bureaus changed the judgement on their report back to unsatisfied (I received no notification of this as well and this while I am set up for the credit monitoring and just saw it yesterday when I looked at our account with that bureau). We are getting ready to close on the 23rd of this month on a FHA loan, and I am concerned they will pull the one report that is reporting the status of this wrong. Will they most likely do this and even if they do will a lender typically take the proof I have listed as sufficient that we did pay this debt? Thanks very much :)
      0 Votes

    • BA
      May, 2012
      Bill
      Some lenders will pull an applicant's credit report moments before closing to see if the applicant's credit profile changed. Others do not, and it is up to the lender's underwriting department if it wishes to set and follow such conservative policy. In other words, I don't know what your lender will do.

      Gather the proof you provided the bureaus, and draft a one-page, to whom it may concern letter explaining the evidence. Should your lender stumble across the erroneous information published by the credit reporting agency, you can spring to your defense with your cover letter and proof to knock down the false information.
      0 Votes