Filing for Chapter 7 bankruptcy won’t get rid of a judgment that’s already on your record. Depending on your situation, you may not care.
When you file for Chapter 7 bankruptcy, you are looking to wipe out your personal liability for repayment of certain debts.
If a creditor sued you and got a judgment before the bankruptcy case is filed, then you may be able to wipe out that liability.
But the judgment is a separate matter. It is a record of an official result of a lawsuit in court. Even if you wipe out your liability for the debt, the record of your judgment remains in place.
What If You Do Nothing?
Assuming the underlying debt is wiped out in your Chapter 7 bankruptcy case, the judgment remains nothing more than an empty shell.
The creditor cannot freeze your bank account, seize your wages, or take any further action against you.
However, the judgment may remain on record as a valid lien against any property you owned at the time your Chapter 7 bankruptcy was filed. The creditor can’t do anything with the lien, but it will need to be paid off in the event that you try to sell the property while the judgment is in place.
Under California law, a judgment becomes a lien on land, a house or other building you own only if the judgment creditor files an Abstract of Judgment. In other states such as New York, however, the judgment is automatically a lien against property.
Why A Judgment Lien May Not Be Troubling
A judgment does not last forever. In the event that the judgment is considered a lien against your property, you may not be concerned if you don’t intend to sell the property before the judgment expires.
Judgments expire in 10 years under both California and New York laws. In both states, however, the creditor can apply for an extension of the judgment to get 10 more years to collect the debt.
In addition, if you’re in New York you have the option of going back to state court to seek a discharge of the judgment after a certain amount of time has passed since your bankruptcy discharge. Learn more about that here.
If you go through Chapter 7 bankruptcy and have a judgment but don’t expect to need to sell your property within the time that’s left for enforcement, you may decide to do nothing. It’s a decision you need to make with your bankruptcy lawyer.
How To Get Rid Of The Judgment Lien In Bankruptcy
Let’s say you don’t feel comfortable with the lien remaining in place.
If that’s the case, you’ll need to file a motion to avoid the judgment lien in bankruptcy court.
To do so, you’ll need to prove that the lien is impairing an exemption to which you are entitled under the bankruptcy laws. You should expect to provide to your lawyer at least all of the following:
- valuation of the property;
- balance due on all mortgages, home equity loans, and other liens; and
- copy of the judgment (and, if applicable, Abstract of Judgment) from the state court.
Is It Included In Your Chapter 7 Bankruptcy Fees?
Depending on when the judgment is issued, taking care of the motion in bankruptcy court may or may not be made a part of your retainer agreement. You want to make sure your lawyer knows about all pending lawsuits and outstanding judgments so that he or she can properly assess your situation.
Read the retainer agreement carefully and ask questions. Without full information about what’s covered and what isn’t, there’s no way for you to plan your post-bankruptcy future.