Don't Default on a Stipulated Judgment

Dear Opening Credits,

I defaulted on a Capital One stipulated agreement to pay $650 per month. The creditor has agreed to cut my balance in half in exchange for my signature. Our stipulation was very simply written, with no provision to allow Capital One to collect the original balance of twice the stipulated amount. Am I on the hook for the original debt or the stipulated reduced amount?

- Alson

Dear Alson,

In all likelihood, you do owe more than what you would have had you followed the terms of the newer contract. After all, you broke that contract.

To fully understand why this may be, reflect on what a "stipulated judgment" really is. It's a legally binding agreement that means that you, the delinquent debtor, agree to take certain actions, such as pay a fixed amount on the same date of each month. The creditor agrees to certain actions as well. It may reduce the balance, eliminate interest charges and fees, or accept smaller than normal payments. If you do not follow through with your end of the bargain, the deal is over and the creditor reserves the right to sue you, obtain a judgment and then collect as allowed by law.

So, when you negotiated a stipulated judgment with Capital One, the company agreed to slash the balance, as long as you paid a fixed sum until that reduced debt was satisfied.

I wish you had stuck it out, because 50 percent off is a generous reduction. Perhaps you consented to the payment too readily, though. The $650 a month may not have been within your true financial capability, yet you were overly optimistic and eager to pay down the debt. Instead of stopping the payments altogether, you should have contacted the company first. If you wanted to renegotiate the deal or just needed a temporary reprieve, it might have been flexible with the terms.

However, it appears that you didn't have such a discussion with the creditor. When you ceased paying, the contract ended. Because of that, it's almost certain you already reverted to owing the original debt -- less the payments you've already made. Yes, even though it was simply written.

What can you do now? Figure out what you can afford to pay each month and contact the creditor again. Remember, all it wants is the money. Maybe, just maybe, it will go back to the bargaining table with you.

Then again, the creditor may be done with deals. If this is the case, try hard to get your hands on the amount you now owe, and send it over immediately. If a lawsuit goes forward, here's what can happen:

Wage garnishment. If you're working, the creditor may be permitted to attach a portion of your wages. Not only will your income be reduced, but your employer will know. Most people find that embarrassing.
Lien on real property. Own a car or a home? It's possible the creditor will put a claim on the property. When you sell it, the portion of the proceeds that you owe goes to the creditor.
Levy. If you have cash in savings or checking accounts, it may be taken. Valuable assets are also at risk, as the creditor may force the sale and take a cut of the profits.
Credit damage. The judgment may or may not appear on your credit reports when you're adhering to a stipulation, but it definitely will if a lawsuit goes though.

Oh, and the liability will be even bigger because court costs and other fees will be added.

If you truly believe that the contract was written so poorly that the creditor does not have the right to increase your balance to the original sum, it's lawyer time. You have the right to fight.