Bankruptcy offers many advantages — it can wipe away crushing debt, stop creditors from taking collection actions against you, and give you time to gain control of your finances. But what if a lien has been filed against you? Can you file bankruptcy on a judgment?
In this article, we explore what happens to judgments in bankruptcy. To learn more, contact a Charlotte NC bankruptcy attorney at the Law Office of Jack G. Lezman, PLLC today.
How Bankruptcy Stops Collection Actions Against You
If a creditor decides to sue you for the debt you owe them, the court will enter a judgment against you for the amount of the debt, attorneys’ fees, and other costs. The creditor may be able to use the judgment to garnish your wages or your bank account, or even attempt to seize your property.
When you file for bankruptcy, however, the court orders an “automatic stay”, which prohibits such collection actions. And after you finish a Chapter 7 or Chapter 13, you will likely be able to eliminate the creditor’s right to collect.
Is the Judgment for Dischargeable or Nondischargeable Debt?
If the unpaid debt the creditor sued you for is dischargeable, bankruptcy can eliminate it. This includes credit card debt, medical bills, personal loans, and utility bills.
However, if the debt the judgment against you is based on is nondischargeable, it can’t be wiped away in bankruptcy. This includes most student loans, child support or alimony, tax debt, and DWI death or injury awards. It also includes debts creditors can request the court to find non-dischargeable through an adversary proceeding (such as judgments for assault, fraud, and embezzlement).
How Are Judgments Treated Differently in Bankruptcy?
While you may be able to wipe out debt underlying a judgment if it qualifies as dischargeable debt, you may still not be in the clear.
The judgment may provide the creditor with a lien on your property that gives them rights to it. These rights allow the creditor to be paid from the proceeds when you sell the property. They also cover all the property you own.
The bad news is a judgment lien can survive bankruptcy and make selling or refinancing your property difficult. The good news is that you can file a motion to remove the lien through bankruptcy.
How Do You Avoid Liens in Bankruptcy?
To get avoid a judgment lien in bankruptcy, you have to prove three conditions to the court:
- The lien came from a money judgment issued against you from a debt that is dischargeable;
- You have equity in the property the lien is attached to; and
- The lien consumes a substantial amount of the equity in your property you could otherwise have exempted.
Avoiding a lien requires that you claim in your bankruptcy filing your right to exempt equity in your property. You must demonstrate that you need an exemption to release equity that is taken up by the lien. You must also file a lien avoidance action in the bankruptcy court in a timely manner.
If you have more equity in your property than you can exempt, the creditor might argue that the lien is valid. In that case, the lien remains up to the exemption amount. The likelihood of this becoming a problem for you depends on whether you file for Chapter 7 or Chapter 13. If you decide to not take any action, the lien will remain in place. Your creditor will have rights to your property after the close of your bankruptcy case.
However, even if you haven’t filed to avoid the lien before your case is closed, all hope is not lost. Most courts will allow you to file a motion to avoid the lien before or even after your bankruptcy case is closed.
When Can You File Bankruptcy on a Judgment? Ask a Charlotte NC Bankruptcy Lawyer
Can you file bankruptcy on a judgment? The simple answer is yes, but avoiding liens through bankruptcy can be a tricky process. The best way to protect yourself is to consult an experienced Charlotte NC bankruptcy attorney. At the Law the Office of Jack G. Lezman, PLLC, we can help you understand your options. Contact us today for a consultation.