Consumers have access to all sorts of credit instruments. Among them are personal loans. These are loans people tend to use to fund travel, buy expensive gadgets, or even settle debt owed to other creditors. While personal loans can be a helpful financial tool under certain circumstances, they can also become a devastating financial trap. For example, consider what happens when a personal loan leads to a civil judgment.
A civil judgment is a court order recognizing the validity of an outstanding debt and compelling the debtor to pay. In terms of a personal loan, a lender may choose to file a civil lawsuit after several months of trying to collect unpaid back payments. A win not only results in a court order, but it also gives the lender additional tools to collect.
Personal Loans Are Risky
Understanding why a lender will go to court over a personal long is easier if you understand the big problem with this sort of lending: it is risky. Personal loans are unsecured loans, meaning there is no property backing them up. They are offered solely on the debtor’s promise to repay.
By contrast, auto loans and mortgages constitute secured loans. Both types of loans involve collateral: the car on auto loan finances and the home purchased with a mortgage, respectively. These types of loans are less risky because lenders can seize the property and sell it to pay the debt.
There is nothing to seize and sell on a personal loan. That means lenders assume greater risk by making personal loans. In addition, not being able to collect from a deadbeat customer leaves lenders with few viable options. That is where civil litigation comes into play.
Plenty of Tools to Work With
A big advantage of civil litigation is that winning a judgment against a debtor gives lenders additional collection tools. Those tools vary from one state to the next, but there are a number of them that are consistent in nearly every state. Here are some of the most commonly utilized collection tools:
- Wage garnishment
- Bank account garnishment
- Property and non-earnings garnishment
- Property liens
- Asset seizure and sale.
Judgment Collectors, a Salt Lake City debt collection agency specializing in unpaid judgments, says that creditors usually attempt to work out payment plans with debtors after a judgment is filed. Unfortunately, not all debtors are cooperative. Some do not respond to lender efforts to collect information about employment and assets. Some go so far as to hide assets. Even leaving town isn’t necessarily out of the question.
An uncooperative debtor leaves the creditor with little choice but to employ aggressive collection efforts. This is often the time to bring in a specialist collection agency. An agency that focuses exclusively on judgments tends to know how to use the available tools to maximum advantage.
A good collection agency will begin research in an effort to uncover unreported assets. They will look for everything from real estate to non-earned income. If they can find something to go after with a lien or seizure, they will.
In a nutshell, judgment collection agencies do not mess around. If they are brought on board to collect unpaid personal loans, they will utilize every means available to them. That is the number one reason to make good on a personal loan. The last thing you want is for a loan to go to judgment so that a collection agency can come after you.
If you are going to take out a personal lone, make sure you can pay it back. Better yet just avoid personal loans altogether.