Bankruptcy Court Judgments

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Some types of debts can be financially overwhelming, and the threat of even a single collection lawsuit sometimes can lead borrowers directly to filing for bankruptcy.

Even so, it is never a good idea to file simply because of a threatened lawsuit. Anyone on the verge of bankruptcy can use the power of a possible filing as a negotiating tactic. Bankruptcy even can be reconciled in out-of-court negotiations.

Once someone actually is sued, the rules change a bit. Financial disclosure is inevitable, and your creditor may be eager to settle your debt once he or she knows that there simply are not enough resources for the debt to be paid. Major creditors also know that an unsecured debt does not become a secured debt just because a judgment has been made. Rather, a lawsuit often is intended to pressure a debtor to act quickly and in the creditor’s favor. Sometimes, the most lawsuit-crazed creditors go after fairly small debts, and the only way to deal with them is through your attorney.

It is almost impossible to know whether or not a judgment is secured or protected from discharge in bankruptcy. For example, most crimes, many civil violations (called “torts”), and attempted frauds cannot be wiped away in bankruptcy courts. Failing to contest a court judgment because you plan to file bankruptcy should be avoided; a bankruptcy and a collectable judgment on your credit report is not a good result!

Just because a court rules against a debtor does not ensure that the debt is collectable in practical terms. In reality, some people have so many debts and enough legal protection of their assets, that they essentially are “judgment proof”.

Lawsuits do hurt credit, and if you are trying to avoid bankruptcy you might try also to avoid the lawsuit. On the other hand, there may be risks involved with negotiating an agreement on the courthouse steps, including a limit of your right to discharge debt in bankruptcy. Sometimes there also are situations in which it is too expensive for a creditor to try to collect your debt.

None of this should be taken to mean that a judgment is unimportant, but simply that a court judgment does not always hold when considered with a dash of reality.

A filed lien transfers ownership and rights of debtors’ personal property to their creditor(s). Liens are granted when a creditor has won a judgment, and a lien is included therein. Fortunately, most creditors do not bother with this.

While your daily life probably will not be affected significantly by a lien, a lien can become quite important in cases of bankruptcy or property seizure. A lien usually is wiped out with the sale of a seized property, because the law protects people who purchase a home that has been seized for debt. If it did not, there would be immeasurable problems in “clearing” a title to sell a home.

If you intend to file bankruptcy with a lien on your assets, the lien should be fought directly in your case. Fighting these liens may result in the return of some of your assets and property, if you file quickly enough and pursue your case aggressively.

Unfortunately, creditors also can be aggressive, and often do so through a practice called “process supplementary”. After getting a judgment in their favor, determined creditors can utilize a supplementary process to the lawsuit to find out what and where any assets may be. The court will look into any major transfers of property, especially to family members. Such transfers almost certainly will be deemed fraudulent, and that property might be confiscated by the sheriff. Even worse, a lien might be placed on your home in the event of fraud. If recorded as a lien, a judgment may be enforceable for up to twenty years in many states.

Conclusions

Needless to say, legal advice about bankruptcy and handling judgments is crucial. One of the best ways to defend against a lawsuit is to take an active role. Defending yourself in a court may stop the process through negotiations or mandatory arbitration. Almost certainly, the amount won in any judgment will be reduced if you are physically present to argue with the creditor. Members of the military, or individuals who had no knowledge of being sued, may argue that the lawsuit should be “reopened” or vacated.