Lots of people looking for information about ” should you file bankruptcy” are doing so because they’ve been sued and sometimes lost. If you’re one of them, take heart: the sky has not fallen, even if you didn’t fight the lawsuit.
Most judgments ARE dischargeable in bankruptcy. Some aren’t. And in a few rare instances, the question of whether the judgment can be discharged may be the subject of a lawsuit IN the bankruptcy court.
Simple breach of contract lawsuits are the most common these are the kind that commonly result in wage garnishments. Joe fails to pay his credit card and Bank sues him. Joe has no idea what to do about the Summons and Complaint, so does nothing. Bank waits thirty days for Joe’s response, gets none, shouts “Halleleujah!” and requests a “default” judgment (i.e unopposed.) Judgment is granted, stamped by the court clerk, and now Bank can try to collect the money using more and different ways. Like, for example, levying Joe’s bank account. Or garnishing his wages, if he has a job. Or doing a “till tap” if Joe runs a business. (That’s where the lender pays to have a sheriff’s deputy intercept incoming money and keep it for the lender. In the “for what it’s worth” department, not many creditors want to spend the $100+ per day to have the sheriff stationed there.)
Now that the judgment is entered, is it too late for Joe to get help from bankruptcy? Not at all. Bankruptcy neutralizes the judgment, just as effectively as if the bankruptcy had been filed prior to Bank’s lawsuit being filed in the first place. Joe’s attorney must take special care to get the right paperwork to the right people at the court where the lawsuit was filed, but is he does, the judgment essentially disappears. It’s no longer even reported on Joe’s credit report.
Let’s pretend for a minute that Joe is somewhat less than the honorable, conscientious client I almost always see. He’s been convicted of fraud (a crime) and is ordered to pay restitution? Bankruptcy won’t help. If he dodged a bullet in the criminal case but the victim sues him successfully and the jury (or judge) finds fraud? Same problem. And his ex doesn’t have to worry about her judgment for support arrears being disturbed, because that’s not dischargeable. If the Dept. of Education catches up with Joe after a lifetime of having eluded his student loans, they can actually garnish his Social Security benefits to the tune of 15%.
Make sure you tel your attorney about any lawsuits and judgments you know about. The best time to catch them is BEFORE your bankruptcy is filed, not 9as sometimes happens) years later.