Perks of having a Bankruptcy in case of a Money Judgment
In cases of judgment against you, bankruptcy is the most feasible way out to cease the collection actions and discharge the debts. However, it may be quite challenging to get rid of a lein, as in most cases the creditor will have lien rights against your property. Moreover, a surviving judgment lein in a bankruptcy case may make it difficult to sell or refinance your property later.
In most scenarios, filing of a lawsuit (by the creditor) in case of an unpaid debt will end up leaving a money judgment. Also, if you lose a case, or do not file an answer to the courts judgment, a judgment will be passed for an amount which will not only include the debts but also the attorneys fees along with the fees for filing a suit.
Based on the state laws, the judgment creditor will be able to get your bank account or wages garnished. He can even take away and sell your property. However, filing a bankruptcy will bring automatic stay into effect which will cease all such collection attempts.
After the successful completion of a Chapter 7 and Chapter 13 bankruptcy, the judgment creditor will probably have no more rights to collect on the debt. However, the judgment creditor may get a lien which will give him or her certain rights to your property.
Working of a Judgment Lien
The working of a judgment lien varies from state to state. In some states, a lien is automatically created by the money judgment, while in others, the creditor is required to record the judgment with the secretary of state or the county recorder to create the lien. If your state follows the second approach, you must file a bankruptcy before your creditor successfully records the judgment and perfects a lien.
A judgment lien usually covers all of the property owned by you, and gives rights in them to the creditor.
A judgment lien is indeed a powerful tool for the creditors, but its effects can be tackled with, by filing a bankruptcy and meeting certain conditions, such as:
- There is a possibility of getting the underlying debts discharged.
- Your ability to exempt equity in property is being damaged by the lien.
The lien rights of the creditors will not automatically get discharged by filing a bankruptcy. In order to eliminate it completely or a portion of it, a lien avoidance action needs to be filed in the bankruptcy court. It is necessary for the debtor to demonstrate his or her right to exempt (some or all) the equity in the property which the judgment lien is damaging. Otherwise, the debtor will not qualify for it.
Further, if the debtor fails to take any action against the judgment lien, it will remain attached to his or her property even after the bankruptcy case gets closed. However, most courts may allow you to reopen your case to address your lien issues, if your action is not filed before the case is over.
Dischargeable Debts
If the original debt is dischargeable, your bankruptcy filing will discharge your liability. According to the bankruptcy laws, all the debts can be discharged unless there are other guidelines for it in the bankruptcy code. Some of the debts that always remain are:
- alimony and child support
- income taxes that are recent
- condo and homeowner’s association that accumulate after a bankruptcy filing
- student loans (if undue hardship is not proved in a separate action)
- obligations arising due to injury or death in the case of an intoxicated driving
- fines and compensations
A creditor can also file another lawsuit, known as an adversary proceeding, in the bankruptcy court to ask them to make additional debts non-dischargeable. In case the judgment debt fits in any of these categories, it will be dischargeable unless there is a successful objection against it by the creditor. The creditor can object malicious or willful injury, goods, money or services acquired by fraud, and fraud committed despite being in a position of trust.