Should I Accept a Stipulated Judgment to Settle a Collection Lawsuit?

If you are being sued by a creditor, the creditor may offer to “settle” the lawsuit by putting you on a payment schedule, provided that you agree to a stipulated judgment.  Most people faced with a lawsuit want to do anything that will put an end to it, and are happy to jump at any opportunity for settlement. However, the creditor’s settlement proposal may not be as good of a deal as it seems.  And before you agree to it, you should understand the legal consequences of your decision, so you can make an educated choice.

What is a “stipulated judgment”?

A stipulated judgment is a judgment to which you agree voluntarily, or a judgment by consent.  So what is a “judgment”?  A judgment is a court order that determines the rights and obligations of the parties to a lawsuit.  If you are being sued by a creditor, and the creditor obtains a judgment against you, the creditor obtains a court order saying that you owe the money, and the amount that you owe.  The creditor can then proceed to get that money from you.  You have the right to appeal a judgment, but once that right expires, the judgment will stay in place practically indefinitely, unless you pay it off, or eliminate it through bankruptcy (Read  7 Mistakes to Avoid When Filing for Bankruptcy in Arizona).

The effect of a stipulated judgment is the same as the effect of a regular judgment.  However, by agreeing to a stipulated judgment, you give up important rights.  First, you give up the right to require the creditor to prove that you are responsible for the alleged debt.  Second, you give up any defenses you may have, such as the statute of limitations.  Third, you give up the right to appeal the judgment. 

What happens after I sign a stipulated judgment?

Once you sign a stipulated judgment, the creditor has the legal right to collect the entire amount stated in the judgment.  Usually, in order to get you to agree to the stipulated judgment, the creditor will agree not to enforce the judgment so long as you make payments under the agreed-upon payment schedule.  However, if you miss any payment, or even if you are simply late, the creditor can usually immediately enforce the judgment.  That is, the creditor can recover the entire amount of the judgment from you.  The creditor will usually do this by garnishing your wages or your bank accounts (Read our Ultimate Guide to Stopping Garnishment in Arizona).

Are there any benefits to a stipulated judgment?

A stipulated judgment can be beneficial in some circumstances.  The primary benefit is that it puts an end to litigation, which may be a good outcome if you have no good defenses to the creditor’s lawsuit.  Ultimately, whether a stipulated judgment makes sense in your particular situation will depend on how its benefits compare with its risks and costs.  To make that determination, you should consider at least the following factors:

• Do you have legitimate defenses to the creditor’s lawsuit?  If you have legitimate defenses, it may be more cost-effective to defend the lawsuit rather than agreeing to a stipulated judgment.  One common defense is the statute of limitations—if a debt is too old, the creditor may no longer have a right to enforce it.  Another defense may available if the creditor suing you is not the creditor from whom you borrowed the money—if the suing creditor cannot show that it obtained the debt from the original creditor, it may not have a right to enforce it against you.

• Will you be able to comply with the payment schedule?  The reason you are considering a stipulated judgment is because the creditor has agreed to put you on a payment plan to pay off the debt.  If you are unsure that you can actually make the payments in accordance with this plan, then the stipulated judgment only gives the creditor an easier way to garnish you wages or bank accounts.  So consider carefully if you have sufficient income to make the monthly payments to the creditor for the duration of the payment plan.

• Related to the above, what happens if you are a little late on one of the payments?  If the creditor gives you no grace period whatsoever, and being even one day late will constitute default under the payment schedule, then agreeing to a stipulated judgment may be more risky.  On the other hand, if there is a grace period, or if the creditor must give you an opportunity to catch up before declaring the payment schedule in default, then your chances of actually being able to comply with the payment schedule increase.

• Is the creditor giving you any concessions?  If the creditor is agreeing to let you pay less than the full amount you owe, then agreeing to a stipulated judgment may make sense.  For example, let’s say you owe $10,000, and the creditor agrees that if you make payments of $7,000, it will waive the remainder, but if you fail to make the payments, it will enforce a stipulated judgment for the full $10,000.  A stipulated judgment may make sense in such a situation, provided that you have the means to make the payments.  (For more on the tax consequences of debt forgiveness, read Form 1099-C and Debt Forgiveness in Arizona).

• Are all of your agreements with the creditor in writing?  You should not enter into a stipulated judgment unless all of the promises made to you by the creditor are in writing.  So, if the creditor tells you that it will let you make payments of a certain amount over a certain number of months, that needs to be put in writing and signed by the creditor or its lawyer.  If a creditor tells you that it will write off part of the debt, that also needs to be put in writing and signed by the creditor or its lawyer.  If a creditor refused to put any promise or representation in writing, this should be a red flag that the creditor has no intention of complying with those promises.

For an overview of debt resolution options, read Debt Settlement vs Bankruptcy: Pros and Cons. If you have already accepted a stipulated judgment, and are now facing collection action, such as garnishment, read How to Stop a Wage Garnishment Right Now and Ultimate Guide to Stopping Garnishment in Arizona.

The above is provided for general informational purposes only. It is not intended to and does not constitute legal advice, and does not create an attorney-client relationship. If you need legal advice for your specific situation, you should contact a qualified attorney in your area.