Will Bankruptcy Help Avoid a Judgment?
Having a creditor obtain a judgment against you opens the door to have your wages garnished and your back account levied. Preventing a judgment before it happens is important. Paying off the debt, working out a payment arrangement with the creditor or filing bankruptcy, may prevent a judgment.
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Judgment
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A creditor has the legal right to petition the court and ask for a judgment to be granted. A judgment is a legal order authorizing the creditor to pursue remedies to recover the money you owe. A creditor with a judgment is entitled to garnish a portion of your wages, withdraw the funds from a bank account or place a lien on your property. Judgments can drastically reduce a credit score and have a long life in many states. In most states, a judgment can be renewed at least once. This means a judgment can remain and accrue interest for 10 to 20 years in most states. Interest accrues on the judgment and over time the judgment balance will continue to grow.
What is Bankruptcy?
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Bankruptcy is a legal process developed to allow people to have a second chance with finances. The two most common types of bankruptcy for individuals are Chapter 7 and Chapter 13. Chapter 7 is used when the filer has very few or no assets. In a Chapter 7, most debts are wiped clean. Chapter 13 is designed for debtors who do have assets. The bankruptcy allows the debtor to be placed on a payment plan to repay the debt. The total amount of debt is also reduced. In both a Chapter 7 and 13 bankruptcy, some debts cannot or are rarely discharged such as child support, student loans and criminal restitution.
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Judgment and Bankruptcy
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Bankruptcy stops all legal proceedings and collection efforts from all sources. This includes any creditor trying to obtain a judgment. After you file a petition with the court, notify the creditor with the case number and the date the bankruptcy was filed. The creditor cannot pursue any legal actions. Whether the judgment is ultimately avoided will be dependent on whether the U.S. Bankruptcy Court in your state approves your bankruptcy case.
Life After Bankruptcy
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Bankruptcy does deal a devastating blow to your credit, but so does a judgment. A bankruptcy is not the end to your financial future and can, instead, be a new beginning. You will need to obtain new credit, handle the credit well and your credit score will rebound quickly. Within two years of filing a bankruptcy, you cannot only have credit cards and other loans but can qualify for a mortgage. The key to life after bankruptcy is ensuring that every single credit account you obtain is handled with care and you stay within your means. Do not obtain credit that you are unable to afford. Make each and every payment on time and keep all balances on credit cards under 30 percent of the credit limit. These steps will help ensure your credit score recovers nicely.
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References
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