Can you collect on a judgment if they file bankruptcy?
When you win a judgment, you still have to collect the money awarded—the courts won’t do it for you. Legal steps to collect on a judgment include garnishing wages, seizing assets, or placing a lien on the judgment debtors’ real property, including land and buildings. Can you collect on a judgment if they file for bankruptcy? If the person or business (judgment debtor or defendant) files for bankruptcy, you will likely be unable to collect your debt, especially if the debt is dischargeable.
Bankruptcy laws help debtors who cannot pay what they owe liquidate their assets to pay off debts or create a repayment plan. They also protect troubled businesses and provide orderly distributions to creditors through reorganization or liquidation.
However, bankruptcy does not remove all debt; some, such as child and spousal support and money judgments in personal injury cases, are not dischargeable. Also, judgments with a lien attached don’t go away in bankruptcy automatically. So while it’s possible to discharge judgment in bankruptcy, there are some situations where you can collect on a judgment if they file bankruptcy.
Lien changes everything
A money judgment allows the creditor to attach a lien to a debtor’s property. It gives creditors rights over the debtor’s property until they pay it. With a lien, a creditor can either sell off the property to recover their debt or wait for the debtor to sell the assets and get paid out of the profits.
Lien is often placed on the debtor’s real property, which includes their home, land, or buildings. In some states, the judgment automatically gives the creditor lien to all the debtor’s property. Others require the judgment creditor to file the judgment with the recorder’s office, state secretary, or a similar office first.
For example, in California, a judgment does not automatically become a lien on the judgment debtor’s property. Without a lien, the judgment award or debt remains unsecured and potentially dischargeable in bankruptcy.
Examples of judgments bankruptcy can discharge
Bankruptcy can wipe out judgment for most lawsuits whether or not judgment is attached. Examples of debts that can be discharged include personal and business loans, car loans, second mortgages, credit card bills, unpaid medical bills, and deficiencies from a short sale. In most cases though you can not collect on a judgment if they file bankruptcy.
Example of judgments that bankruptcy cannot discharge
- Domestic support obligations, including child support, spousal support obligations, or alimony
- Criminal cases, including debts incurred by fraud, misrepresentation, or false pretenses, are non-dischargeable in bankruptcy if the creditor can prove fraud to bankruptcy standards.
- Death of personal injury awards, including those resulting from driving while intoxicated
- Debts owed to government entities, including taxes, court costs, etc
- Student loans
What to do when a debtor files for bankruptcy
Creditors must be diligent once a debtor files a bankruptcy case. Sometimes, the debtor may not have any assets to be liquidated. Others may have assets to pay creditors; in others, the debtor intends to repay a portion. When the debtor has assets, creditors must file a proof of claim to recover their money.
There are many complexities involved in collecting on a debt once a bankruptcy case is filed, and it can be challenging for people without experience and know-how of the law to collect debts. However, selling your judgment to reputable agencies guarantees some payment on your debt owed.
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