Creditors get impatient if you don't pay them. If a creditor takes you to court and wins a judgment against you, it gives the company several ways to collect the money you owe.
The creditor can garnish your wages, which means your employer must deduct money from your paycheck and send it to the creditor, who will apply it to pay down your debt. Armed with a judgment, a creditor also has the legal right to take money out of your bank account. The good news is that bankruptcy can often stop this.
Most Court Judgments Can Be Included in Bankruptcy
If the judgment against you involves unpaid medical bills, credit card debt or other consumer loans, filing for bankruptcy prevents a creditor from using the judgment to collect from you. The judgment still exists and it's still on record with the court but, subject to a few exceptions, it no longer does your creditor any good.
Some Court Judgments Can Not Be Discharged
If a judgment involves money you owe because of wrongdoing on your part - such as negligence, fraud or drunk driving - it usually won't be discharged in a personal bankruptcy. You will still be responsible for paying these debts, even after you've declared bankruptcy.
Adversary Complaint in Bankruptcy
When you file for bankruptcy, your creditors aren't entirely defenseless. If you include a judgment in your filing and the creditor who won the judgment believes you should still have to pay that debt, the creditor can file a new lawsuit against you. This new lawsuit will be part of your bankruptcy case – it's called an "adversary complaint" and it asks the bankruptcy judge to make you pay the debt, even though you've declared bankruptcy.
Bankruptcy and Liens
Some judgments result in liens against real estate you own. The creditor who obtains the judgment can use it to place the lien, which prevents you from selling your property until you pay the debt. In bankruptcy, judgments and liens are two different things. If your creditor placed a lien, bankruptcy usually does not undo this. You'll still have to pay the debt before you can sell your property. However, you or your lawyer can file a motion as part of your bankruptcy, asking the court to undo the lien as well.
Some Liens in Bankruptcy Can't Be Removed
Just like with judgments, some liens can't be erased or undone. If a judgment and lien resulted from work you had on your home, it’s called a mechanic's lien – a type of debt that is usually not discharged in bankruptcy. If the IRS files a tax lien against your real estate before you file for bankruptcy, this can't be discharged either.
A Personal Bankruptcy Lawyer Can Help
The law surrounding court judgments and personal bankruptcy is complicated. Plus, the facts of each case are unique. This article provides a brief, general introduction to the topic. For more detailed, specific information, please contact a bankruptcy lawyer.