This is one of those situations no one wants to find themselves in. Battling it out in the judicial system is a long, drawn-out, expensive undertaking; especially unpleasant when you are flat broke without any money to pay damages awarded to the plaintiff.
So what happens when faced with such a predicament?
First, the creditor will get in touch with you and ask you to pay what you owe.
Instead of hiding from your problem, deal with it in a transparent manner. Be truthful and open. Send a letter to the plaintiff explaining what lead you up to this moment, and why you are unable to facilitate payment due to lack of funds.
This is where legal financing companies come in. Also known as litigation funding, these companies assist you, the judgment debtor, with a certain amount of money to help finance your court case for a predetermined percentage of all settlement costs awarded.
Despite similar business practices with the moneylenders of lore, legal funding companies are different from shylocks operating more like venture capitalists. Money fronted by legal funding organizations are not loans per se, hence these transactions are not recorded at the credit bureau. This is advantageous, as your credit ratings are not affected when you get an advance.
Another benefit of legal financiers is that should you lose the case, you are not required to pay back the cash advance. Furthermore, no payments of any kind are required from you until the case is settled.
To qualify for a legal financing advance, the company must deem your case worth the risk. When applying for legal financing, your attorney will help you fill out an application form and any other necessary documents.
A hired lawyer is a prerequisite of obtaining legal funding advance. This is because litigation-financing companies are not in the business of giving legal advice to clients. These companies solely offer financial support; any legal advice must come from your attorney.
So let us look at a scenario where you are being sued and find yourself in court, with no money to pay the creditor.
Unless there is a valuable asset somewhere, what usually occurs is the prosecuting lawyer will study the case and conclude it is in no way worth his time especially considering payment is not guaranteed. Here the plaintiff may drop the case, as there is no sense in taking you to court – knowing that you are broke.
Alternatively, the creditors can sue for future wages, or receive a portion of all future earnings. Creditors are permitted to take no more than 25% of your wages as recovery.If unemployed, they can enforce a lien on any asset in your name. A ruling passed by the court is binding and valid for 10 years; should you come across any assets after the court’s judgment – inheritance for instance – creditors can renew that judgment every 10 years and come to collect.
It is worth noting some creditors are known to be overly aggressive when soliciting payment.
This is where the Consumer Protection Agencies appear. The responsibility of which is to shield debtors from unwarranted harassment and educate on restrictions imposed on debt collectors.
Such restrictions include:
- Debt collectors are limited to calling you twice a week at home for each debt.
- If you make a written request that they not call/bother you at work, they must oblige.
- They cannot use obscene language or issue any kind of threat, verbal or otherwise.
- Most importantly, if you have instructed the debt collector to contact your lawyer exclusively, they are required to have no contact whatsoever with you.
An important thing to keep in mind is that collection agencies are not allowed by law to take everything you own.
“Protected Income” is an investment that is shielded from the creditor. If all your assets are protected, the court considers you “collection proof” meaning creditors cannot take anything from you. Child support, Social Security Disability, Workers Compensation, all fall under the Protected Income umbrella
Another strategy is to file for bankruptcy. This protects you and your assets. One should file for bankruptcy only after careful consultation with your lawyer as it does have its own disadvantages such as having a negative influence on your credit.
Remember all this is subject to the legal system practiced in your country and rulings vary across the board depending on location. While one country may expect you to serve time behind bars for failure to pay, another may instruct you to pay your creditor in the form of labor, yet in developed countries, a social institution may step in and pay the compensation for you while requiring you to pay back later; similar in practice to Legal Financing Companies.