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Do not let holiday bills wreck your credit this Christmas season

When you borrow money from a financial institution you sign a contract promising to repay the debt. What happens when you fail to make those payments on time?

Creditors vary on the exact time they start taking action against late payments. Some creditors send you a notice of late payment if you are 10 days late. Others don't send a late notice until you are 30 days late.

If you get 60 days behind, you will receive another request for payment. At the end of 60 days, some creditors will turn the debt over to an attorney or collection agency for them to collect the late payment. Some creditors have their own in-house representatives who collect debts.

At the end of 75 to 90 days, if the debt has not been turned over to a collection agency or attorney, expect a personal visit from your creditor. If a creditor turns your account over to an attorney, expect an additional cost of 15 percent in attorney fees.

After 90 days, if the debt has not been collected, you can expect some type of court action by the creditor. The creditor will file a suit in small claims court, magistrate court, or state court in an effort to get the court to make you pay your bills. The court's decision is called a judgment.

If the court rules in the creditor's favor you can expect your wages to be garnished or your assets to be attached. Your savings or checking account can be seized. Your personal property can be seized and sold. If the court says your wages can be garnished, the creditor notifies your employer of the garnishment action and about 25 percent or your wages are sent to the creditor. A creditor can also legally take your assets in your checking, savings, or Christmas Club account equal to the value of the court judgment.

After 120 days, the creditor can file a formal foreclosure in court and repossess the property. This action is taken if you are unemployed, self-employed or the money can't be collected in any other way. If the court rules in favor of the creditor, the collateral is repossessed. This means you lose the car, truck, appliance, or other item for which you borrowed the money.

The creditor sells the collateral, which usually does not sell for the amount you still owe on it. If the creditor does not sell the item for enough money to pay off the loan, he will file another suit for a deficiency judgment to make up the difference between what was owed and the sale price of the item.

Do not ignore the suit. Contact an attorney immediately. If you fail to file an answer to the suit and fail to appear in court, the creditor will win his suit by default. If you appear in court, you can possibly work out an acceptable plan with the creditor. If you don't appear in court you can't defend yourself against the creditor's claim.

Web posted on Thursday, December 28, 2006

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