If you're dealing with personal judgments, filing for bankruptcy may be an option to clear them. However, it's important to understand the different types of judgments and the bankruptcy process before making a decision.
Personal judgments result from legal action taken against an individual for a debt or obligation. These judgments can create financial hardship, as the holder of the judgment may try to enforce it by seizing property or requesting a wage garnishment order.
Before filing for bankruptcy, it's worth considering other ways to deal with default judgments. We've outlined 5 alternatives to bankruptcy that may work for you.
If you do decide to file for bankruptcy, it's important to determine whether you qualify and the cost of the process. To help with this, we've created a bankruptcy and cost calculator that estimates qualification and cost based on your zip code. You can find it below:
Bankruptcy may clear judgments, but it's crucial to know which type of bankruptcy to file for. Chapter 7 and Chapter 13 of the Bankruptcy Code are two options to consider. By filing under these chapters, you may be able to clear personal judgments and start fresh.
Overall, if you're struggling with personal judgments, it's important to explore all of your options and make an informed decision. Filing for bankruptcy may be a viable solution, but it's not always the best choice for everyone.
How Do Judgments Work?
Filing a Complaint
When a legal dispute arises, the first step in seeking a resolution is to file a complaint with the court. This is typically required in most states. For example, if you have an outstanding balance on a credit card or medical account, the creditor may file a complaint with the court to enforce the debt. Once the complaint is filed, you will be served with a copy of it. This serves as notice that legal action has been taken against you and gives you the opportunity to respond.
Responding to the Complaint
When you receive a complaint, you have two options. You can either ignore it or respond to it. If you choose to ignore it, the court will issue a default judgment against you, which grants the relief requested in the complaint. This relief typically includes a monetary judgment against you. The court may also add extra costs like attorneys’ fees, court costs, and interest, making the judgment amount much higher than your original debt to the creditor.
On the other hand, if you decide to respond to the complaint, you must file a response or answer with the court before the deadline mentioned in the summons. Most states allow 20 to 30 days to respond to a complaint. It's essential to keep track of the exact deadline because if you miss it, the court may grant a default judgment against you, even if you file a response later.
After Filing Your Answer
Once you file your answer, the court will set a hearing date. While hiring an attorney is not mandatory, it can be advantageous to have one representing you. An attorney can help you understand the different defenses you may use to avoid a judgment. They also have a good grasp of the court process and can investigate and gather evidence that could help you win the case.
During the hearing, both parties present their arguments and facts supporting their position. If the other party proves their claim, the judge can order you to compensate them for the amount you owe, including additional costs and fees. The judgment is recorded and filed with the clerk of court.
The laws on how long a judgment remains active vary from state to state. In many states, judgments remain active for at least ten years. This means that you have a legal obligation to pay the debt, and the party you owe can take legal action to collect the debt. In some states, the party can renew the judgment for an additional period to keep it active.
Collecting a Judgment
Did you know that the laws for collecting a judgment for bankruptcy clear judgments vary by state? That's right! In some states, judgment holders can garnish a person's wages to satisfy the judgment, while in others, they can seize certain property. However, before seizing property, state law usually requires a court review to determine if state exemptions protect the property.
So, when should you file for bankruptcy to resolve a personal judgment? Well, it all depends on how aggressively the other party can collect the judgment under your state's specific debt collection laws. If they have more power to collect, you may want to consider filing for bankruptcy sooner rather than later to protect your assets. It's always best to consult with a legal expert to determine the best course of action for your specific situation.
How Chapter 7 Bankruptcy Clears Judgements
When filing for Chapter 7 bankruptcy, most personal judgments can be discharged, or forgiven. It's a simple process: you just need to list the judgment holder in your bankruptcy forms, and they will receive notice of the bankruptcy from the Bankruptcy Court. However, some judgments cannot be discharged in bankruptcy, as they are protected by bankruptcy laws.
Examples of non-dischargeable personal judgments include judgments related to crimes, such as restitution for a crime victim or DUI accident cases, as well as fines and criminal penalties. Additionally, debts such as student loans, alimony or child support, intentional and malicious injury to another person, debts created through false pretenses, fraud, or misrepresentation, and debts owed to the government, including most tax debts, cannot be discharged in bankruptcy.
On the other hand, judgments for medical debts, credit card bills, business debts, breach of contract disputes, and personal loans are usually dischargeable in both Chapter 7 and Chapter 13 bankruptcy cases. This means that you can clear these debts through bankruptcy and start fresh with a clean slate.
Does Bankruptcy Clear Judgments in Chapter 13 Bankruptcy?
When filing for Chapter 13 bankruptcy, the same rules apply regarding the discharge of a judgment debt. If the judgment is related to a priority unsecured debt, you must pay the debt in full through your bankruptcy case. This means that the debt is not dischargeable. However, if the judgment is unsecured and eligible for discharge, the creditors will receive the same percentage as your other unsecured debts. At the end of the bankruptcy case, your legal obligation to repay the debt is discharged.
It is important to note that priority unsecured debts are not the only debts that may not be dischargeable in a Chapter 13 case. There are other factors that may affect the dischargeability of a debt, so it is recommended to consult with a bankruptcy attorney to fully understand your options and the potential challenges.
Releasing Liens Against Property
When you owe money to someone and they win a lawsuit against you, they become a judgment creditor. Depending on the laws of your state, the creditor may have the right to put a lien on your property. However, not all of your property may be subject to collection efforts, and some assets may be exempt. It's important to note that even if you file for bankruptcy and receive a discharge, the lien against your property will still exist. To remove the lien created by a personal judgment, you may need to take additional steps such as filing a motion with the court to receive an order for its removal. Fortunately, in many cases, this is all that is required to remove the judgment lien.
Do You Want More Information About Bankruptcy?
Bankruptcy can be a solution to clear judgements against you, but it's important to understand the type of judgement that can be cleared.
If you're considering filing for bankruptcy, we have resources to help you understand the process and determine if you qualify. Our Chapter 7 Guide and Chapter 13 Guide provide additional information, and you can use our Chapter 7 bankruptcy means test calculator or Chapter 13 calculator to estimate costs and repayment plans.