Editor’s Note: Each state has different laws when it comes to enforcement of money judgments, including those relating to private student loans. This article works with the laws of the State of California; if you live anywhere else, talk with a lawyer in your state about your individual situation.
After the private student loan lawsuit comes the judgment. For California residents, this could be better or worse – depending on your situation.
We’ve talked about why a student loan lawsuit may not be a bad thing, but you should weigh your options before allowing the private student loan debt go to judgment.
How Long Is A Judgment Valid?
Under California law, a money judgment is valid for a period of 10 years from the date of entry.
The judgment may be renewed for an additional 10 years, but only if the application for renewal of the judgment is filed before the expiration of the 10-year period of enforceability.
Once the first renewal is made, the creditor can renew again for successive 10 year periods of time.
All in all, the private student loan judgment can be renewed for as long as you live.
The Debtor’s Examination
The first step towards enforcing the judgment is called the debtor’s examination.
This is the private student loan company’s opportunity to call you to court to answer questions about your assets. You may also be required to bring copies of bank account statements, paystubs, and tax returns to show your income.
You may be tempted to throw the Order for Appearance and Examination in the garbage, or to treat it as an optional trip to court. This is a terrible idea, because failure to appear for the examination may result in you being arrested and cited for contempt of court.
Enforcement Begins
Once the debtor’s examination is completed, the private student loan lender’s attorneys have all the information they need to move ahead with enforcement of the judgment.
They know where you live, where you work, where you bank, and how much money you’ve got.
With that information in hand, the private student loan lender can take all of the following actions:
- file a lien on any real property you own in the state of California;
- file a lien on your personal property by filing a notice of judgment lien in the office of the Secretary of State. The lien attaches to all of the following:
– Accounts receivable for a business you own;
– Tangible chattel paper;
– Equipment located within this state;
– Farm products located within this state;
– Inventory located within this state; and
– Negotiable documents of title, located within this state.
- begin a wage garnishment against you;
- levy against your bank account (in other words, take you money out of the bank);
- levy against your automobile; and
- levy against the cash register or the business that you own.
Talk With Your Spouse
Married? If so, you’d better have a talk with your spouse right away.
California is a community property state, which means that the community property of a debtor’s spouse may be subject to garnishment and levy as well.
It doesn’t matter if the private student loan debt was incurred before the marriage, either. Once you’re married, the community property interests of the debtor and nondebtor spouse are usually liable for debts incurred by either spouse.
That means your private student loans, taken out years before you got married, suddenly become your spouse’s problem.
How To Avoid The Problems
Luckily, the judgment may not be the end of the world.
You’ve got exemptions you can claim under state law, so you may be able to protect some of your wages and property.
You may be able to negotiate a deal with the judgment creditor in exchange for leaving your property and wages alone.
In a pinch, you might want to consider Chapter 13 bankruptcy as a way to restructure payment of the private student loans because it will stop a garnishment and levy against you as well as your spouse and any cosigners.
Taking quick action is definitely your best move. Sweeping it under the rug won’t do you, your spouse, or your wallet any good.