It is never too late to file bankruptcy on a judgment. However, there could be consequences of waiting to file bankruptcy until after you receive a judgment. Whenever you are struggling with debt problems, it can be best to seek advice from a qualified bankruptcy lawyer earlier rather than later.
By waiting until the last minute to get information about filing bankruptcy, you could lose some of the options you had available to you earlier in the process. In some cases, you might avoid filing bankruptcy altogether if you explore your options for dealing with debt problems before a creditor files a collection lawsuit.
What is a Personal Judgment for Outstanding Debts?
A personal judgment is an order from a court establishing that you owe a debt to another party. The debt can arise from a collection account, such as a credit card, medical debt, or personal loan. A judgment may also be ordered for a deficiency in a foreclosure action or after a repossession. The deficiency is the amount of money owed to the lender after the collateral is sold, and the sales proceeds are applied to the outstanding debt.
Courts may also issue monetary judgments in cases involving personal injury claims, including DUI accidents, slips & falls, and other accidents. You could have a monetary judgment issued against you in a civil matter, such as a contract dispute.
Collection of Judgments by Creditors
Most judgments begin as lawsuits. If you ignore the lawsuit, the judge may issue a default judgment. Fighting the lawsuit can still result in a judgment against you if you lose the lawsuit.
Once a party has a judgment against you, it can take additional legal action to collect the debt. In some states, judgment creditors may seize property to satisfy the judgment. In other states, judgment creditors are allowed to garnish wages to satisfy the judgment.
The good news is that filing bankruptcy can get rid of the judgment.
Filing Bankruptcy Before and After a Judgment
If you file your bankruptcy petition before the judgment is issued, the automatic stay stops the lawsuit immediately. Whenever possible, this is the best way to deal with a potential judgment. Once a judgment is filed, it becomes a lien on property in most states. While a bankruptcy filing might discharge the debt, it does not get rid of the lien.
To get rid of the judgment lien, your bankruptcy attorney must petition the court to cancel the judgment lien. Most attorneys charge extra for this service, and the court could deny your request. Therefore, if you are going to file bankruptcy, it is generally better to do so now rather than wait until the court enters a judgment.
Also, many creditors work very quickly to collect on a judgment. You could lose assets or income by waiting to file bankruptcy until after a judgment is entered. Filing the bankruptcy case might allow you to get some of your money back that was seized through wage garnishment. Still, you may not recover all garnished funds depending on the timing of the bankruptcy filing and the garnishment of the wages or seizure of assets.
Judgments That Are Not Dischargeable
Some judgments may not be dischargeable in bankruptcy. If the underlying debt would not be discharged in a bankruptcy case, the judgment is not discharged. For instance, judgments for DUI accident claims are not discharged by bankruptcy.
Other non-dischargeable debts include domestic support obligations, student loans, restitution, fraud, and most debts owed to the government. You would continue to owe these debts after the bankruptcy case closes unless they are paid in full through a Chapter 13 plan.
A credit can ask the court to lift the automatic stay so that the lawsuit may continue. The court might grant the request if the debt is not dischargeable in bankruptcy. A court may also grant the request if the outcome of the case determines a creditor’s rights within the bankruptcy case.
Creditors may also file an adversary proceeding without the bankruptcy case. The adversary proceeding is a lawsuit filed within a bankruptcy case. The bankruptcy judge assigned to the bankruptcy case is also assigned to hear the adversary case. Adversary proceedings typically deal with debts that a creditor alleges are non-dischargeable or when the debtor commits fraud or other misconduct.
The Bottom Line – Act Now to Avoid More Problems
The best way to deal with the matter is to talk to a bankruptcy lawyer as soon as possible. A lawyer advises you about your bankruptcy options and helps you decide whether filing a bankruptcy case to stop a lawsuit or get rid of a judgment is in your best interest.
Remember, the quicker you act, the more options you might have for dealing with the problem. However, if you ignore the matter, the situation could become worse, and you could lose money or property unnecessarily.
If you are interested in talking to a bankruptcy lawyer, Ascend can help. We partner with bankruptcy lawyers throughout the United States. All our partners offer free bankruptcy consultations. You can get the advice you need free of charge with no obligations.
Our free debt relief calculator can help you compare options for getting rid of debts. We can also refer you to a bankruptcy attorney in your area for a free consultation to discuss your situation in more detail.
If you have questions or want to speak with someone now about debt problems, please contact Ascend by calling 833-272-3631.