More Lenders Are ‘Garnishing Wages’ To Get Paid Back

[davidn3600]

60. Most lenders don't go to this extent

First off, it would be very costly to do this to every person that defaults. So it depends on the case.

Usually a lender will attempt to settle the debt. That way they make a deal to get some of their money back. This is done with credit card defaults quite often. One advantage to the debtor is that a settlement doesn't ding the credit report as bad as a full write off, collection, or judgement. An advantage for the bank is they dont have to spend a bunch of legal and collection resources.

If the debt isn't very large, they may just write it off. It becomes an analysis of whether it's worth it to pursue. If collateral was put up (ie: mortgage, car loan), most banks don't go much further than taking back collateral unless you have other assets or they think you are socking a bunch of money away.

Lenders may try to file lawsuits against you to see how hard you are willing to fight. I've seen people get sued and the minute a lawyer writes a letter in response the suit gets dropped. (the bank was hoping for a summary judgement or that you would get scared and contact them to make a settlement.) There are all sorts of tricks here.

When it gets to wage garnishments, usually the lender has made multiple attempts to settle a debt or made multiple attempts to contact the debtor. Going that far takes a lot of resources and effort. And it takes a long time.

The statue of limitations also comes into play. For most states, a bank can only pursue a loan for 5 years after the date of last activity (ie: payment from you). After that they may still try to collect, but they legally cannot. In the industry this is termed as "zombie debt."

In the end, you may be able to declare bankruptcy. If you have a debt and are being pursued, don't just ignore it. Talk to an attorney that deals with such lawsuits or a bankruptcy lawyer. The banks know the laws better than you do. You likely need legal assistance when it gets to that juncture.