What Happens to a Lawsuit Judgment When You File for Bankruptcy?

A judgment against you does not necessarily behave the way you would expect once a bankruptcy case is filed. Some judgments get wiped out entirely. Others survive in modified form. A few can even be partially undone if they attached to your property in a way that hurts an exemption you are entitled to claim. The outcome depends heavily on what kind of claim produced the judgment in the first place.

The Automatic Stay Stops Collection the Moment You File

As soon as a bankruptcy petition is filed, 11 U.S.C. § 362(a) puts an automatic stay into effect, immediately halting most efforts to collect on a judgment. Wage garnishment, bank levies, and continued lawsuit proceedings generally must stop. This applies whether the judgment creditor likes it or not, and violating the stay can expose a creditor to real consequences. It is one of the more immediate forms of relief bankruptcy offers someone being chased by a judgment.

Whether the Judgment Itself Survives Depends on What Created It

Most money judgments arising from ordinary debt, such as an unpaid credit card balance or a breach of contract claim, are dischargeable in bankruptcy along with the underlying debt. Judgments rooted in fraud, willful and malicious injury, or certain other categories described in the Bankruptcy Code are treated differently and can survive a discharge even when the rest of your debts do not. The nature of the underlying claim, not simply the fact that a court entered a judgment, controls whether it can be eliminated.

A Judgment Lien on Your Home Can Sometimes Be Undone

If a judgment creditor recorded a lien against real property you own, that lien does not automatically vanish just because the underlying debt is discharged. It can still cloud title. However, 11 U.S.C. § 522(f) allows a debtor to move to avoid a judicial lien to the extent it impairs an exemption, such as a homestead exemption, that the debtor would otherwise be entitled to claim. This process requires a separate motion within the bankruptcy case and is not something that happens automatically simply because the case is filed.

Several factors typically determine how a specific judgment will be treated once a bankruptcy case is filed:

• What kind of claim produced the judgment, such as contract, fraud, or personal injury
• Whether the judgment has been recorded as a lien against real estate
• Whether that lien impairs a homestead or other exemption you can claim
• How much time passed between the judgment and the bankruptcy filing
• Whether the case is a liquidation under Chapter 7 or a repayment plan under Chapter 13

If you have a judgment hanging over you, it is worth finding out how bankruptcy would actually treat it before assuming it will simply go away, or worrying that it never can. Our West Palm Beach bankruptcy attorneys at Kelley Kaplan Delaney & Eller, PLLC regularly review judgments alongside a client’s full financial picture to determine what relief is realistically available.

Source:
law.cornell.edu/uscode/text/11/362