If you are in debt and your creditor obtains a judgment against you, you may be left stranded, not knowing what to do. This is because the judgment gives the lender more authority over your property and strengthens their ability to collect. But, did you know that you can solve this situation through filing for bankruptcy? Filing for bankruptcy will prevent the creditor from collecting or attaching your assets even if they have a judgment against you. This means that the judgment will be discharged or wiped out.
However, how judgments are treated in bankruptcy is based on the kind of debts you have, and not just on the fact that your creditor was granted judgment. There are particular debts that a bankruptcy cannot discharge, and therefore, judgments on these debts won’t be removed either. In this article, lawyers from San Diego Bankruptcy Attorney expound on how bankruptcy works when it comes to discharging judgments.
What a Judgment Means in Bankruptcy
A judgment in bankruptcy merely refers to a document a judge signs, which say that you awe your creditor/creditors a debt or debts. For instance, if you cannot repay your credit card debt on time, your creditor doesn’t have immediate recourse. The lender can only call or write to you, but they can’t attach your individual property right away in satisfaction of the debt you owe. But, after the creditor has obtained a judgment from the court, things change. They then have the authority to use the court to attempt to garnish your wages or attach your individual assets.
How Lenders Can Acquire a Judgment
Usually, for a creditor to get a judgment, they have to bring a suit to court seeking to be paid the past debts that are due payment. In the case of credit cards, most debtors do not file an answer to the filed lawsuit, which makes the lender win by default. In case you, as a debtor, never respond to the lender’s complaint, the judge will presume the debt’s valid and then automatically grant a judgment to the creditor.
Even though the process may appear to be less complicated, judgments do not come easily. First, you have to receive notice of your creditor’s lawsuit for the court to grant a judgment against you. The moment your lender files a lawsuit, they have to inform you by sending you a copy of the suit and a summons. The summons tells you the period you have to answer to the claim, failure to which, the lender wins by default, and the judge will award them a judgment against you.
Should you receive court documents that you don’t understand, it’s best to consult a bankruptcy lawyer to ensure your rights aren’t being violated in any way. Creditors are generally more difficult parties to hold negotiations with after they have acquired a judgment since their capability to collect is stronger at this point.
A judgment gives your lender additional tools they can use for collecting. For instance, it allows your creditor to:
- Levy your bank accounts (forcing your banks to withdraw finances)
- Take your assets, like a car or house
- Garnish your wages (deducting money from your check)
A Judgment Warns the Public that You Are in Debts
A judgment is usually a matter of public record, documented in the San Diego County records. One unfortunate aspect about documenting this judgment is it will reflect on your credit report under the section dubbed ‘public records.’ Bankruptcies and judgments will both reflect on the credit report under the said section. Both of these can do substantial harm to your credit score. Apart from revealing your financial record status, a judgment also tells the public that you have debts to pay and that your lenders may bank on your individual property in satisfaction of that debt.
However, note that unless you’ve any non-exempt assets, even the lender that has obtained a judgment won’t be capable of taking any property from you. Those debtors that do not have any property that’s vulnerable to lenders are called judgment proof.
Most documented judgments last for ten years. Often, creditors are allowed the chance to renew the judgment before its expiration. By this, it means that even though you might not have money today, but if you get a lot of money tomorrow, your lender may still enforce their judgment against your cash.
Does Bankruptcy Discharge a Judgment?
If your creditor files a lawsuit and obtain a judgment against you, you could often use the filing for bankruptcy to your advantage. This is because the bankruptcy case you present is going to discharge the debts you have and prevent several acts of collecting. However, we have an exception to the idea of filing for bankruptcy. For instance, if you have non-dischargeable debts, the judgment against you will likely not be discharged. Also, if the lender reserves lien rights over your assets, you may or may not be capable of eliminating the lien after you file for bankruptcy. Any judgment lien which survives bankruptcy might make it hard for you to refinance or sell your assets later. Let’s look at how judgment discharge works in different types of debts.
Bankruptcy Discharges Most Judgments
Most of the judgments against debtors involve unpaid due debts. In case you don’t pay your debts for medical bills, credit cards, or other individual debts on time, your lender can file a breach of contract suit against you. And as we said earlier, in case your creditor acquires a judgment, then they may go after your individual property or garnish your wages in satisfaction of the outstanding debt.
Luckily, if you file for bankruptcy, you can prevent the garnishment. It also wipes out your liability to repay discharged debts. While a judgment suit is still pending, a bankruptcy’s automatic stay is enforced to prevent it from going forward. But, even if the court has already granted a judgment, still your discharge will remove obligation in any case. However, note that in case the judgment against you is for non-dischargeable debts, bankruptcy won’t eliminate it, as we will discuss later.
Bankruptcy Discharges Judgment for Dischargeable Debts
If a lender obtains a judgment when the debt you owe is dischargeable under Chapter 7 bankruptcy, then filing for this kind of bankruptcy wipes out the lender’s capability to collect. Note that not all debts are dischargeable under Chapter 7 bankruptcy. However, judgments place a lien on your assets, and liens do not automatically go away.
When liens attach to property like your house, your lender will be paid from the sales profits after you sell your home. Luckily, you can bring a motion in court seeking to evade a lien in the bankruptcy case. In most cases, you will successfully remove the lien. However, note that you have to bring the motion since filing for bankruptcy alone won’t eliminate the lien, and it does not work in each situation.
Also, note that liens with respect to judgments are a challenging area under bankruptcy law, which, in many cases, you will need professional assistance. If you would like to make sure you protect your valuable assets as best as you can, you should seek advice from an expert bankruptcy lawyer.
Bankruptcy Does Not Discharge Non-dischargeable Debts
The best place to start in determining whether a judgment will be discharged after filing for bankruptcy is to know whether your debts are nondischargeable. Examples of non-dischargeable debts include:
- Student loans (there are exceptions)
- Spousal support or child support obligations
- The debts you owe to the government organizations (taxes, restitution in court cases, fines, court costs, criminal penalties, etc.
- Injury or death awards that result from driving under the influence
If you have any of the above debts, then the judgment your lender obtains against you won’t be discharged after filing for bankruptcy. Still, other forms of debts may be non-dischargeable in case your lender files an objection. The procedure you creditor should follow to request the judge to rule a generally dischargeable debt as non-dischargeable is to bring an adversary motion in a bankruptcy court. Often, these kinds of debts form the basis of adversary proceedings filing:
- Injuries brought about by a malicious or willful act like assault
- Fraud achieved when in a position of trust, like embezzlement while posing as a guardian or trustee
- Fraud used to acquire goods, money, or services, for instance, lying when applying for credit
In case the judgment does not relate to any of the categories mentioned above, and the lender does not protest against your discharge, you can then remove the judgment under Chapter 7 bankruptcy. However, a lien may still remain.
Filing for Bankruptcy Won’t Automatically Discharge Liens from Your Assets
When you file for bankruptcy, you will receive a discharge of your debts. This means the bankruptcy removes your personal obligation to repay all the discharged debts. When this happens, you are not obligated to repay those debts anymore, and your lenders cannot personally sue you to collect those debts. However, filing for bankruptcy doesn’t automatically eliminate any lien that was placed on your assets before filing your suit.
As we earlier said, if a lender acquires a judgment against you, they may enforce the judgment in various ways, which include wage garnishment, placing liens on your assets like your house, or levying your bank accounts. If your property has a judgment lien, then you should bring a motion in court seeking to eliminate it.
However, note that filing for bankruptcy cannot remove all judgment liens from your assets. Whether or not bankruptcy can eliminate a particular judgment lien is based on the worth of your property, the lien amount, and other restraints on the assets. The process and rules concerning removing liens can be complicated. Thus, if your properties have liens, consider consulting a skilled bankruptcy lawyer before bringing your bankruptcy case.
Getting a debt discharge after filing for bankruptcy may provide you with a little comfort in case your lender’s lien can still attach to your property like your house. However, there’s a way you could eliminate the judgment lien that’s in your bankruptcy. This is what is referred to as lien avoidance. As long as you didn’t give the lender a permission judgment, you may be capable of removing the lien from your car or home. You can also eliminate the lien from any other property that you can exempt after you file for bankruptcy under Chapter 7.
To be eligible for avoiding lien, you should prove the three conditions listed below:
- The lien is from a money judgment obtained against you (you didn’t agree to that lien to be included in a settlement)
- You’ve property equity against which you could claim an exemption
- The judgment lien consumes all or a part of that equity you could’ve exempted
For lien avoidance to be successful, you have to adhere to bankruptcy procedures. You also must act quickly. You will need to state that your assets are exempt in bankruptcy paperwork then file a motion in court on time.
Remember that in case you’ve more equity compared to what you are allowed to exempt, your lender will most likely claim that the lien‘s only valid up to the amount of exemption. The kind of bankruptcy you file (Chapter 7 or Chapter 13) determines how challenging this issue can get for you. Complications exist that may be beyond your understanding. We advise you to seek legal assistance so a bankruptcy attorney can evaluate your specific case.
Other Ways of Eliminating a Judgment
Apart from filing for bankruptcy, there are two different ways in which you can follow to discharge a judgment against you. They include vacating and satisfying it. First, before filing for bankruptcy, you may want to consider vacating or satisfying the judgment. Let’s look at how these two ways work.
Vacating the Judgment
If you responded to the judgment suit your lender filed against you and the judge granted a judgment against you, it is very unlikely that you will be able to vacate the judgment. However, if you didn’t respond to the lawsuit and a judgment was granted against you, then you should find out whether or not you could vacate that judgment. Vacating a judgment can also be referred to as setting aside the judgment. For you to be able to vacate a judgment against you in California, you have to bring a motion requesting the court to set aside or vacate it. Apart from other things the judge should know, you must also tell him/her why you didn’t answer the lawsuit. You can do this through a written declaration.
The timing and reason for you filing a motion are critical. Therefore, you should not include these without the help of an attorney. Generally, if you did not have actual notice of the lawsuit, you only have two years from the day the judgment against you was obtained to file the motion. In case you were aware of the suit but didn’t respond on time, then you have six months to bring the motion based on excusable neglect. If the judgment is over two years old and you did not know about it, there is nothing you can do about it.
Should you win your motion, the judgment will be vacated, and then you can challenge the case. If you are capable of contesting the case, it means you have many more options you can pursue to resolve it. Usually, the settlement of a contested case is better by far than the settlement of a judgment. You might even be capable of winning the case. Either way, your judgment lender will not have the capability of garnishing your wages, placing a lien on your property, or levying your bank accounts. San Diego Bankruptcy Attorney law firm has successfully presented this motion several times. Consult us if you want to know more about this method of discharging a judgment.
Satisfying the Judgment
Satisfying a judgment means settling it and having the judgment lender bring a Satisfaction of Judgment to court. Judgment lenders often agree to settle judgments for a lesser amount than the complete balance. There are several reasons why they do this, which they won’t tell you. That is why a skilled attorney would be the best person to consult. Apart from getting a better settlement offer for a judgment, you have to ensure that the whole judgment’s settled. For instance, don’t make any payments except if you’ve got a written agreement stating the exact amount of money to be paid and when it’s to be paid.
You should never agree to an agreement stating something like, ‘we will reassess/review this payment plan in six months.’ If you’re to pay a judgment, then you must make sure it will surely be paid, and then your creditor will file a Satisfaction of Judgment. Ensure that you do this using an attorney. San Diego Bankruptcy Attorney boasts a performance-based, affordable program for resolving judgments.
Find a Competent Bankruptcy Attorney Near Me
Removing a judgment through bankruptcy is a complicated area of bankruptcy law that needs the help of an experienced bankruptcy attorney. Should you have any questions about discharging a judgment against you in California, do not hesitate to contact San Diego Bankruptcy Attorney Law Firm. Our attorneys have been helping bankruptcy clients in San Diego solve cases for a considerable period. Thanks to our clients, we have the required experience to handle any issue related to bankruptcy. Call us now at 619-488-6168. You need to make sure you are taking the appropriate steps towards protecting your assets.