Can a Court Judgment Be Erased in a Bankruptcy?
Creditors have the right to sue debtors who fail to repay what they owe. If a creditor sues and wins, it can then pursue garnishment of your wages or attempt to seize your bank account. Filing bankruptcy can put a halt to creditor lawsuits and prevent further collection actions. If you've been sued by a creditor and are unable to pay what is owed, filing bankruptcy can give you a clean financial slate.
Other People Are Reading
-
Automatic Stay
-
All debtors who file for bankruptcy protection are immediately granted an automatic stay regardless of which chapter they file for. The automatic stay effectively prevents creditors from pursuing further collection actions. If a judgment has already been entered against you, the automatic stay prevents your creditors from seeking to garnish your wages and bank account or attach liens to your property. If a garnishment order is already in place, it is immediately halted upon filing bankruptcy. Debtors whose wages or bank accounts have been garnished immediately prior to filing bankruptcy can petition the court to have the funds returned to them.
Removing a Judgment
-
While a bankruptcy filing can halt execution of a judgment, you must take additional steps to have the judgment removed. You have to petition the bankruptcy court to remove the judgment at the time your bankruptcy case is discharged. The debt must have been included in your initial filing in order for the judgment to be removed. If a judicial lien has been placed against a home, land, motor vehicle or other personal property you own, you are required to file a motion with the bankruptcy court where your original petition was filed in order to have the lien removed.
-
Exceptions
-
There are several exceptions regarding the types of judgments that may be removed in bankruptcy. If a judgment has been entered against you for unpaid child support or alimony prior to your bankruptcy filing, these judgments must remain in place until the obligation is satisfied. Judgments stemming from personal injury cases in which you caused another individual harm, either accidentally or through willful and/or malicious actions, also cannot be removed through bankruptcy. Filing bankruptcy also has no effect on removing judgments if you are sued by a federal or private lender for unpaid student loans.
Considerations
-
If you are being sued by multiple creditors, filing bankruptcy can potentially protect your wages and other assets. However, if you cannot exempt your assets under the bankruptcy laws in your state, filing does not provide an absolute guarantee that you will be able to retain them. If you're being sued by only one creditor, you may consider negotiating a payment arrangement or settlement agreement in lieu of bankruptcy. While filing bankruptcy can remove your liability for certain judgments, it can have a significant negative impact on your credit score. Consider speaking with a qualified bankruptcy attorney or credit counselor to determine the most appropriate option for your situation.
-
