If you are found responsible by a judge in a civil judgment lawsuit, the moment that gavel hits the block could strike terror in your heart. And yet, the most frightening part of the ruling could be its impact on your credit reports and scores.
Civil judgments can be reflected on your credit reports and negatively affect your credit scores, according to attorney Norman Hafron, a founding partner at Chicago law firm Rosenfeld Hafron Shapiro & Farmer.
Hafron explains that civil judgments are damages related to a lawsuit from noncriminal matters, and result when a person or company sues you and a judge rules that you are responsible. In many cases, the suit is for damages in the form of money. If the plaintiff is successful in convincing the judge that he or she has been wronged and money is owed, the judge will enter a judgment against you stipulating that decision.
If you are sued and do not respond to the lawsuit, your credit reports and scores may also reflect this. These debts are called default judgments.
Hafron encourages clients to try to settle whenever possible, as most people do not realize the impact that a civil judgment can have on their lives. Civil judgments are considered public-record information viewable by anyone, and are often reported to the credit reporting agencies.
Bruce McClary, Vice President of Public Relations and External Affairs at the Washington, D.C.-based National Foundation for Credit Counseling, says, “A civil lawsuit is any noncriminal legal dispute between two parties. It might include things like personal injury, property disputes, workplace discrimination and contract disputes. Judgments in these cases … often result in one party being required to make a financial commitment as restitution.”
In those cases, a record of that financial obligation could be provided to the credit reporting agencies for inclusion on the individual’s credit report, McClary said. Those could include judgments for unpaid credit cards, loans, alimony and child support.
A civil judgment will not only have a negative impact on your credit scores. Potential employers can find this information, and an employer may decide not to hire you, depending on the circumstances of your case and on your field or type of job.
McClary explains, a civil judgment reported to the credit bureaus “will have a negative impact on a credit report, especially if it is recent and unpaid. Over time, payments can help satisfy a judgment and minimize its impact on a credit rating.”
Credit reporting companies regularly update your records, which is why consistent review of your credit reports is important. In fact, changes in July 2017 in credit reporting rules caused TransUnion, Equifax and Experian to remove and exclude an estimated 96 percent of civil judgments and 60 percent of tax liens from credit reports, which was a credit score windfall for roughly 12 million consumers. If your civil judgment or tax lien report does not include all your Personal Identifying Information – i.e., name and address, social security number, and/or date of birth – the debt should not appear on your credit reports.
A civil judgment on your credit reports will impact your scores more negatively than a loan for the same amount, because the judgment against you is considered a consequence of something you did wrong.
“Civil judgments will remain on a credit file seven years after the filing date and can be refiled to extend the reporting period if they remain unpaid,” says McClary.
Civil judgments cannot be removed during that seven-year period. After you pay the civil judgment, your credit reports will reflect this and your scores will start to improve. If you do not satisfy a civil judgment during the seven-year period, it will remain on your credit reports as unpaid, and, as McClary says, could be refiled for another seven years.