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Default Judgments, Gutter Service and the Statute of Limitations

Updated on February 10, 2011

Owing debt to a collection agency is a game of financial Russian roulette. Sometimes, debt collectors play by the rules–knowing that, if they don’t, there will be legal repercussions. Other collection agencies bend the laws to the point of torment in an effort to force debtors to pay up. Others go even further yet, breaking the law in order to employ sneaky collection tricks and obtain default judgments on time-barred debts.

How a Default Judgment Works

Collection agencies have a right to sue you for the full duration of your state’s statute of limitations for debt collection. The SOL for debt collection varies significantly depending on which state you live in, but once it expires its game over for creditors who may have been hoping to enforce repayment through the courts…or is it?

If a creditor sues you and you don’t acknowledge the court summons and don’t show up in court, it wins the lawsuit by default. The judge then awards a money judgment to the plaintiff in the amount requested (sometimes adding court costs and attorney fees as well) Because the judgment is awarded by default and not by the plaintiff actually arguing and proving its case in court, its known as a default judgment. 

Collection Agency Lawsuit Notification

If a collection agency sues you, it has to notify you of the impending lawsuit. In most states, all the debt collector has to do is send the court summons and complaint to your last known address via certified mail. When asked, most individuals who have never been sued naturally assume that their local sheriff has to hand deliver their court summons, but this is rarely the case.

Some states even allow debt collectors to publish a notice in the local newspaper notifying you of an upcoming debt collection lawsuit. If you fail to respond (and you likely would) the collection agency proceeds with its case against you and walks away, default judgment in hand.

Gutter Service

Some collection agencies have been known to intentionally send the summons and complaint to the wrong address or simply not send it at all. This is known as “gutter service.” The debt collector behaves properly with the court and provides all of the right paperwork and proof of service when, in fact, it intentionally broke the law by sending the summons to the wrong location. Because the debtor didn’t receive the summons, he or she cannot possibly know a lawsuit is pending and appear in court to argue their side of the case. This, naturally, results in a default judgment in favor of the collection agency. 

Suing Outside the SOL

A collection agency may file a lawsuit against you at any time. If the statute of limitations has expired on your debt, you have an airtight defense. You need only notify the court of the debt’s expired SOL in order to have the lawsuit thrown out of court.

Most individuals, however, have no idea that they have this right. When they receive the court summons they automatically believe that there is little they can do to protect themselves. The situation is even worse for those who cannot afford to hire an attorney. 

Collection agencies know that few debtors will defend themselves against an out of statute lawsuit and sometimes file these in the hopes that frightened debtors will fail to appear in court and the company will subsequently be granted a default judgment. Once the court grants the judgment, its validity stands even if the original debt was outside the state’s statute of limitations

The moral of the story is to monitor your credit report closely and always answer any court summons you may receive from a debt collector. The statute of limitations won’t be enough to protect you if you fail to notify the court of the age of the debt. Monitoring your credit report gives you the opportunity to immediately notice a major entry like a judgment. Because most states place time limits on contesting a court ruling, its critical that you find out about any default judgments due to gutter service or out of statute lawsuits as soon as possible. 


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