Can Creditors Still Sue and Garnish Me While I’m in a Debt Settlement Program?

Yes. Enrolling in debt settlement does not stop a creditor from suing you, obtaining a judgment, placing a lien on your home, and garnishing your bank or paycheck. Any creditor that doesn’t want to settle is free to sue you at any time, and they do.

Meet Bonnie

I met yesterday with Bonnie. She enrolled three Chase credit cards and three other credit cards with National Debt Relief.  She also had one loan she paid directly. She faithfully made her debt settlement payments for over a year. Bonnie was pleased that the smallest of the Chase cards and one other were settled and cleared.

But the two biggest Chase cards sent her a warrant in debt. She believed National Debt Relief would stop them in court. (They never promised that.) So instead, Chase got a default, put judgment liens on her house, and then garnished her pay. The garnishment is the reason she came to see me.

Sadly, getting sued and garnished is a common and painful surprise for people in debt settlement.

Why This Happens

Debt settlement programs tell you to stop making payments to your creditors and instead deposit money into a dedicated savings account. The settlement company then uses those accumulating funds to negotiate payoffs.

I often see the debt settlement people settle the smallest debts first. You see that debt settlement is working, but the bigger creditors see they are NOT getting paid. The biggest creditors who would be settled last are likely the ones who sue first.

• No debt settlement protection exists to stop a warrant in debt or other lawsuit, a judgment, or a garnishment. A debt settlement company has no legal authority in a court case.

What happened to Bonnie

Bonnie needed to file bankruptcy right away to stop the garnishment. The garnishment would take a quarter of her paycheck, and at that point everything would fall apart. She couldn’t buy food or make her mortgage payment. Her bankruptcy needed to be a Chapter 13 because that’s the best way to clear the two judgments that had already been attached. (For others, especially married people, a Chapter 7 bankruptcy would have been better, but that wouldn’t work in Bonnie’s situation.)

How Does Chapter 13 Compare to Debt Settlement

Like debt settlement, Chapter 13 is a payment plan. For Bonnie the monthly Chapter 13 payment will be about a hundred dollars higher. (Ouch) The difference is, it actually works. Once you get court approval on your payment plan, you know: if you make the payments, the debts will be cleared.

With Chapter 13 you have a law on your side. That law, the automatic stay:

• Stops pending warrants in debt or any other lawsuits
• Prevents creditors from filing new ones
• Stops wage garnishment and, in Virginia, gets back what they have already garnished
• Also stops collection calls and letters

That protection applies to every creditor — not just the ones willing to settle.

If This Has Already Happened to You

If you’re in the middle of a debt settlement program and have a warrant in debt, had a judgment entered, or are already seeing money taken out of your paycheck, it is not too late to do something about it.

Or if you are considering debt settlement in the first place — it’s worth talking through your specific situation to go over your options right now.

Call us at 703-335-7793 and set up a free Zoom consultation. You’ll like our friendly service with a smile.

PS  Based on a true story.

Of course I never use anyone’s real names or exact situations in my blog posts.