Bankruptcy Effect on Judgment Execution
Bankruptcy has a powerful effect on the execution of judgments. Filing for bankruptcy stops creditors and debt collectors from collecting on judgments as you reorganize your finances with the help of a bankruptcy court trustee. A judgment is a legal decision made in court by a judge, ordering you to pay money to a company or person who successfully filed suit against you.
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The Automatic Stay
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Creditors and debt collectors must end attempts to collect on judgments after you file for bankruptcy. That includes collection efforts of any kind, including bank or wage garnishment or calling you to request a payment. The restriction placed on debt collectors by bankruptcy is described in a court order called an "automatic stay." The bankruptcy court issues the order after you file for bankruptcy. The automatic stay is perhaps the most powerful feature of bankruptcy, and a primary reason why some people file.
Loophole
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The automatic stay remains in place as long as your bankruptcy is active. However, the automatic stay is rescinded if your bankruptcy is dismissed for any reason. Bankruptcies are sometimes dismissed because the debtor missed a payment on a court-ordered plan or provided false or misleading information about his financial situation. Creditors can immediately resume all legal collection efforts if the bankruptcy is dismissed and the automatic stay removed.
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Default Judgment
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Some judgments are signed by a judge after people fail to show up for court hearings. These are called default judgments. If the attorney for the credit card or debt collector shows up and the judge has no option but to grant a default judgment. By not showing up for the hearing you forfeit your right to defend yourself. After winning the judgment the creditor or debt collector has the option of requesting garnishment of your bank account or wages.
Negotiating Judgments
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Judgments can be negotiated with the debt collector, usually for the full amount in exchange for a promise the debt collector will not seek garnishment. However, some default judgments lead to garnishment without people realizing they have even been sued. "The New York Times" reports that some people don't find out their accounts have been frozen until checks start bouncing or their debit card is declined. Court notices are sent out about debt-related hearings, but some people who are already frustrated by their debt simply ignore the notices.
When To File
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A nonprofit credit counselor can help you decide if bankruptcy is right for you. Generally, you should avoid bankruptcy if at all possible --- it ruins your credit. Bankruptcy remains on your credit report for a minimum of 10 years. Credit counselors can contact creditor or debt collectors directly to negotiate payment plans on judgments. Find a nonprofit credit counselor in your area by calling a local charity such as the United Way.
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