Does Bankruptcy Stop an Automatic Judgment?
An automatic judgment is more commonly known as a default judgment. It is a legal decision by a judge after you fail to respond to a lawsuit. The judge's decision in favor of the credit card company is considered "automatic" because you waived your rights to a defense by not appearing in court or, in some states, by failing to provide a written response to the lawsuit.
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Credit Cards
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Judgments are common in credit card lawsuits, and they order people to pay money to resolve defaulted credit card accounts. Judgments are issued in other civil lawsuits also and can cause severe financial problems. Some people seek protection from judgments by filing for bankruptcy. Bankruptcy stops enforcement of automatic judgments, making it impossible for the debt collector to collect while you are protected by the bankruptcy court.
Garnishment
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Judgments may lead to garnishment of your bank account and wages. Garnishment allows money from your paycheck to be sent to the debt collector and also allows access to your checking account for withdrawals. The debt collector is freely allowed to make withdrawals until the judgment is paid. During that time you are not allowed access to the account except for deposits.
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The Automatic Stay
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A powerful provision of bankruptcy called "the automatic stay" stops garnishment and other attempts to collect. The automatic stay is a key reason why some people file for bankruptcy protection. Emergency bankruptcy petitions are sometimes filed in one business day, with the automatic stay starting almost immediately. The protection begins when a judge sends a court order directing banks and employers to end garnishment immediately.
Chapter 7
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Judgments are unsecured debts and are eliminated in just months through Chapter 7 bankruptcy. All debts must be listed in the bankruptcy and not just the judgment, however. Chapter 7 is powerful and fast, eliminating judgments and other debt in as little as three months. Drawbacks include restrictions on income. Individual states set income limits for Chapter 7, and generally only those with low incomes qualify.
Chapter 13
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Chapter 13 bankruptcy is also effective for resolving judgments, but it requires payments through a court-ordered plan for restructuring your debt. The plan lasts three to five years depending on income and is closely supervised by the bankruptcy court. Allowances are made for living expenses with remaining income paid to creditors. Unsecured debt, such as judgments, are also eliminated through Chapter 13. Debtors make payments until the plan ends, and remaining unsecured debt -- including judgments -- is wiped out after that.
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