When individuals stop paying their bills, creditors can initiate a lawsuit for the unpaid debt. In some cases, creditors can get a judgment against individuals who do not pay back their debt. Individuals who have judgments against them can use the Chapter 7 bankruptcy process to eliminate their debt. Filing bankruptcy can stop creditors from collecting on their judgments. This article will discuss what a judgment is and how bankruptcy can impact a judgment.
What is a Judgment?
Most debt collectors may send collection notices demanding payment before initiating a lawsuit. Once these collection attempts are ignored, the creditor may initiate a lawsuit to collect the money. A judgment is an order issued by the court against individuals who borrow money but fail to repay their debt.
Sometimes a creditor may get a default judgment against an individual. Typically, when this happens it is because a creditor wins a lawsuit against the individual because the debtor failed to show up in court or file an answer. Typically, creditors will not only be awarded the balance of the debt, but they may also be awarded costs for their attorney’s fees. This can increase the amount the individual owes significantly.
What Can A Creditor Do After They Get a Judgment Against Me?
Once a court issues a judgment against an individual, the creditor can try to collect the money that is owed. When this happens, creditors can put liens on property, garnish wages, or put levies on bank accounts. Luckily, filing bankruptcy can stop a wage execution, lift the hold on a levied bank account, and in certain cases, may be able to remove a lien that was placed on the individual’s property.
Will the Judgment Against Me Be Discharged in Bankruptcy?
Individual’s considering bankruptcy will need to start by determining if the underlying debt on the judgment can be discharged in bankruptcy. Some debts that cannot be discharged in bankruptcy are student loans, child support, spousal support, some tax debt, debts owed to the government (taxes, fines, restitution, etc.) and death awards for drinking and driving. If the individual has a judgment from any of the above, the debt will not be discharged, and the individual will remain liable for the debt.
Individuals who fail to pay their credit cards, medical bills or other debt run the risk of having creditors bring a breach of contract lawsuit against them. Most individuals considering bankruptcy have judgments against them from creditors for failing to repay their debts. These are very common, and most people can discharge their judgments in a Chapter 7 bankruptcy.
It is important to note, sometimes a debt that would ordinarily be dischargeable may not be discharged in bankruptcy. This usually happens when an individual commits fraud. If a filer has caused injury due to a willful or malicious act or has lied on a credit application to obtain money these judgments will generally not be discharged. In these types of cases, a creditor will initiate an adversary proceeding against the filer to stop the debt from being discharged. An adversary proceeding is a lawsuit within the Bankruptcy Court asking the court to not discharge the debt.
What Happens If There Is a Lien on My House?
A judgment entered against an individual is public record. Whenever a judgment is entered it creates a lien on any real estate the individual owns. If a creditor puts a lien on an individual’s property for the debt they owe, such as a house, the individual will be responsible to pay off the debt. Generally, the individual will not be able to sell their home until the debt is paid.
The bankruptcy process allows individuals to file a motion with the Bankruptcy Court to avoid the lien and remove it. Ultimately, it will be up to the judge whether they will allow the lien to be removed from their property.
To remove the lien from a home the individual will have to prove three things to the Court:
Individuals who want to avoid a judgment lien will need to speak with a bankruptcy professional. Only certain types of liens can be removed in bankruptcy and this area of law can be extremely complex.
What If a Creditor Already Started to Garnish My Wages?
Wage garnishment may occur after a creditor gets a judgment against an individual. Once a person loses a lawsuit, the creditor may provide a copy of the order to the local sheriff or Marshall who will then send a notice to the individual’s employer notifying them to withhold a portion of their paycheck and send the money to the creditor until the debt is paid off.
Most individuals who are already struggling may not be able to afford money taken out of their paychecks. Filing bankruptcy can stop a wage garnishment immediately. When an individual files bankruptcy an Automatic Stay is initiated. The Automatic Stay prevents creditors from collecting on debt that is owed. Thus, even though the creditor has been awarded a judgment, and given permission to garnish the individual’s wages as soon as the bankruptcy is filed the garnishment must stop. If the creditor continues to garnish an individual’s wages after they file bankruptcy they are in violation of the Automatic Stay. Creditors who violate the Automatic Stay can be heavily fined and punished.
What If I Entered into a Settlement Agreement with the Debt Collector?
Most individuals who are sued by a creditor will typically be inclined to settle their debt to avoid a judgment being entered against them. Often, individuals assume that because they entered into an agreement to stop a creditor from getting a judgment against them, they will not be able to discharge their debt in bankruptcy. This is false. Individuals who enter into debt settlement agreements with their creditors to avoid getting a judgment, can file bankruptcy and have the debt eliminated.
Will the Judgment Be Erased If I File Bankruptcy?
Bankruptcy allows individuals a way to eliminate their liability for the debt that is owed. Individuals who file Chapter 7 bankruptcy, wipe out their debts so they no longer must repay their creditors. People who file bankruptcy, are only able to wipe out their liability for the debt. Essentially, the judgment is a separate issue. Although the individual will not be liable for the debt, the judgment will not be erased from the person’s record.
Although the record of a judgment is not erased in bankruptcy, individuals should not worry. The record of having a judgment after the debt is wiped out in bankruptcy will essentially be meaningless. The creditor can no longer try to collect on the debt thus, the record of the judgment will have no impact on the individual.
Speaking with a Professional About a Judgment
Individuals who have a judgment entered against them may want to consult with a bankruptcy lawyer. A bankruptcy lawyer will be able to help distinguish whether the underlying debt associated with the judgment can be eliminated in bankruptcy. Further, individuals who have liens on their property should speak with a bankruptcy attorney about whether their lien can be removed through the bankruptcy process. The removal of a lien through the Bankruptcy Courts requires a unique set of circumstances that need to be looked at by a professional.