Ignored collection notices could result in serious legal issues

A debtor may feel that disregarding collection letters appears less intimidating than contacting creditors to arrange payment plans. Ignoring notices from debt collectors, however, may only last a short time before a creditor takes legal action.

As noted by Chron.com, a debtor who receives a summons from a civil district court must file a response or appear at a scheduled hearing. By ignoring a court’s notice, a debtor could find that a judge decided to issue a default judgment in favor of the creditor.

A creditor may seize assets through a default judgment

A default judgment may result in a court order that allows a creditor to garnish a debtor’s wages or levy his or her bank accounts. As noted by the Pew Research Center, a creditor may garnish up to 25% of a debtor’s paycheck. When requested, an employer must provide information about an employee’s wages.

As explained by Bankrate.com, individuals who fail to respond to a judgment may find themselves dealing with a bank levy, which freezes the available funds in an account. Under federal law, however, a levy may only freeze funds worth more than two months of Social Security or other government-issued benefits.

A judgment may result in a property lien

Creditors may request and obtain a court order to place a lien against a debtor’s property. Under these circumstances, a homeowner may not receive proceeds from a property sale until he or she pays off both the mortgage and the lien. Property liens may also affect an application to refinance a mortgage.

Bankruptcy protection offers individuals with unpaid bills, collection letters and court notices a chance to take control of their situation. A workable plan to resolve unmanageable financial problems may begin with filing a petition before creditors begin irreversible legal actions.