Bankruptcy’s over. Now about those judgments on your credit report.
When you have a judgment files against you in New York, it attaches to all property you own. That goes for your house, car, bank accounts – everything. The judgment creditor has the ability to execute on the judgment by seizing assets or, in the alternative, can simply sit back and wait for you to try to sell a piece of property on your own.
When the property is sold, the creditor gets first crack at the sale proceeds.
Even more important for most people is that the judgment itself will continue to show up on your credit report as open and unpaid.
Once there’s a bankruptcy in the mix, things change. Pay attention, because this is important.
When You File For Bankruptcy
When you file for bankruptcy, creditors can’t take action against you. That means enforcement of the judgment must stop, with some limited exceptions.
Once the case is completed, your personal liability for repayment of the debt is discharged. In other words, it’s wiped out.
That, however, doesn’t get rid of the judgment. The judgment is a piece of paper issued by a different court – most likely the Civil Court or the Supreme Court. Though the bankruptcy discharge eliminates your personal liability for repayment of the underlying debt, that judgment is an order of a New York court that attaches to your property that you own as of the minute your bankruptcy case is filed.
If you do nothing, the creditor can still enforce the judgment against property you owned at the time of your bankruptcy filing. The creditor can’t come after you personally, but it can recover against your property because the judgment remains as a lien.
Avoid The Lien In Bankruptcy
One point to note is that the lien must be a judicial lien or a non possessory, non-purchase money security interest in household goods or tools of the trade. Tax liens can’t be avoided in a Chapter 7 bankruptcy.
To avoid the judgment lien in your bankruptcy, your lawyer will need to file a motion with the court. We do this all the time for our clients; it adds a layer of work but aside from the time involved it isn’t unduly complex in most situations.
Cancellation Of Record Of Judgment Filed With New York State Court
Under New York Debtor and Creditor Law 150, once a year has passed since your discharge in bankruptcy you may apply for an order, directing that a discharge or a qualified discharge of record be marked upon the docket of the judgment. If you fail to take this action, the judgment will remain on record with the New York Supreme Court or New York Civil Court (as the case may be) and will remain enforceable.
The End Result
If you jump through all the hoops properly, you’ll be able to get out from under the judgment that’s on file with the New York courts. You’ll discharge your personal liability, too.
Not a bad result, I’d say.