Impact Of A Bankruptcy On A Default Judgment

filing for bankruptcy and default judgment

If you’ve got a default judgment against you for an unpaid credit card debt, personal loan, medical bill, or similar debt then you may be thinking that filing for bankruptcy will solve the problem.  You may want to seriously consider the full story first.

A default judgment is a common reason to consider filing for bankruptcy. In New York a judgment creditor has the right to freeze your bank account, take part of your wages, and continue to add interest on the amount due at a statutory rate until the debt is paid in full.

If you’re living paycheck-to-paycheck as is, the prospect of having to surrender a portion of your income isn’t appealing.  And given the high cost of living in places like Los Angeles and New York, every dollar counts.

It’s true that filing for bankruptcy will stop the income execution (wage garnishee), lift the hold on your bank accounts, and give you some breathing room.  But even the bankruptcy discharge won’t eliminate the impact of that default judgment against you.

A judgment is a matter of public record, and creates a statutory lien on any real estate you own as of the date on which the judgment is filed.  Your bankruptcy may eliminate your personal liability for payment, but if you own any real estate then that judgment will still need to be paid in full (plus interest) when you sell the property.

The only way around that lien is to file a motion with the court during your bankruptcy case.  Whether the facts and circumstances of your situation warrant such an action (or whether the motion would be approved) is up to you and your lawyer.

Even for those who don’t own any real estate at the time the default judgment is entered, filing for bankruptcy will not wipe out the civil court judgment itself.  The judgment will remain as a hollow shell, on file with the civil court (and on your credit report) until some action is taken.

Under New York law (not bankruptcy law) you can file a motion with the civil court to mark the default judgment as discharged, but only after a year has passed since your bankruptcy has been discharged.  Your bankruptcy lawyer may be able to handle this for you, but most lawyers don’t consider that as part of the process of filing for bankruptcy.

Image credit:  Paul Jacobson (Flickr)

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Comments

  1. Hey Jay,
    Thanks for the information. It is an important point to know that a judgment might not go away with a BK. I just sent you a linkedIn message. Do you have a link I can use to subscribe to your blog? I have searched around but haven’t been able to find one. I would like to get updates when you post new information. I stumbled across your blog while looking for a BK attorney for a client of mine in New York and I liked what I read about you and your firm.

    Thanks much.
    Damon Day

  2. ost studies show that a mere two percent of pre-BAPCPA bankruptcy filings could be considered “abusive;” that the total number of yearly filings hasn’t changed much since the new law took effect seems to support those findings… http://www.filingbankruptcynow.com/

  3. Some judgments can be discharged in bankruptcy. Judgments that have been perfected into property liens cannot as the judgment holder becomes a secured property creditor. Judgments awarded in conjunction with personal injury or property damage caused by negligence are generally not dis chargeable.
     
    Apply for bankruptcy

  4. but in this real estate market, couldn’t many judicial liens be avoided/wiped out if they are wholly unsecured as a second or third lien?

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