What Can The Debtor Do If A Creditor Attempts To Collect A Discharged Debt After The Case Is Concluded
If a creditor attempts collection efforts on a discharged debt, the debtor can file a motion with the court, reporting the action and asking that the case be reopened to address the matter. The bankruptcy court will often do so to ensure that the discharge is not violated. The discharge constitutes a permanent statutory injunction prohibiting creditors from taking any action, including the filing of a lawsuit, designed to collect a discharged debt. A creditor can be sanctioned by the court for violating the discharge injunction. The normal sanction for violating the discharge injunction is civil contempt, which is often punishable by a fine.
Ask A Lawyer: Can Bankruptcy Clear Lawsuit Judgments
By Kellie Pantekoek, Esq. | Reviewed by Bridget Molitor, JD | Last updated June 30, 2021
Many types of debt can be discharged or reorganized through Chapter 7 or Chapter 13 bankruptcy, including most lawsuit judgments. However, whether a lawsuit judgment will be discharged in bankruptcy depends on the type of judgment it is. Another important factor is whether the creditor who won the judgment has a lien on property you own.
Attorney Cannot Discharge Malpractice Judgment In Bankruptcy By Claiming He Was Clueless
The provisions of the United States Bankruptcy Code are intended to provide fair and orderly relief for the honest but unfortunate debtor who can obtain a fresh start by distributing available assets, if any, to creditors and discharging debts unhampered by the pressure and discouragement of preexisting debt.; Grogan; v.; Garner, 498 U.S. 279, 28687 .;; There are, however, debts which cannot be discharged and are set forth in 11 U.S.C. § 523 Exceptions to discharge.; Lawyers can take comfort in knowing that what is included in or excluded from these exceptions to discharge will keep lawyers and courts busy until definitions can be digitized which effectively means never.
In Estate of Cora v. Jahrling , 2016 U.S. App. LEXIS 5013 ,; the Court addressed whether an attorney who was sued for malpractice could discharge a judgment entered against him as a result of his malpractice.; The attorney, Jahrling, represented Cora, a 90-year old man, in a real estate sale in which Cora sold his home for approximately one-quarter of its value.
The undisputed facts upon which the malpractice judgment against Jahrling was based were that Jahrling was selected by the attorney representing the parties who purchased Coras home; that Cora only spoke Polish; that Jahrling spoke only English; and that, therefore, Jahrling had never spoken to Cora.
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Fraud Is Lying About An Existing Fact Not Breaking A Promise
Fraud involves a lie about a present or existing fact. This is very different from promising to pay in the future. A typical debt involves liability for negligence, breach of contract, or commitment to pay in the future. However, fraud involves a significant misrepresentation of an existing fact the creditor relied on.
Avoiding Judgment Liens In Chapter 7
If you file for Chapter 7 bankruptcy, you can get rid of judgment liens on your property through a process called lien avoidance. You can avoid a judgment lien if all of the following three conditions are met:
The lien is the result of a court-issued money judgment. The lien must stem from a judgment a court entered against you in favor of a creditor who sued you for money owed.
You could exempt the property in bankruptcy. Bankruptcy laws allow those who file Chapter 7 to exempt certain property from the bankruptcy estate. For more information about exemptions in bankruptcy, read our Bankruptcy Exemptions topic.
The lien would impair your exemption. If you could have exempted equity in your property but the lien reduces the amount of equity you could have exempted, the exemption is impaired and you can avoid the lien.
Example. Credit Union has a $5,000 judgment lien on Lisaâs car. Credit Union procured the lien by suing Lisa for money she owed and obtaining a judgment against her in court. Lisaâs car is worth $5,000. Lisa is able to exempt the entire value of her car using the motor vehicle exemption and the wildcard exemption available in her state. The lien is avoidable.
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Basic Information About Chapter 7 And Chapter 13
An individual can file for bankruptcy relief under different chapters . Although an individual can file under Chapter 11 or Chapter 12 of the Bankruptcy Code, an overwhelming majority of individual debtors file either Chapter 7 or Chapter 13 bankruptcies.
When an individual files a bankruptcy, the most basic reason is to eliminate debts by receiving a discharge. In a Chapter 7, the individual eliminates unsecured debts and keeps property that is exempt. In a Chapter 13, the debtor proposes a plan to pay back certain types of debt over a three to five year period, can catch up delinquent loans on secured property, and can keep non-exempt property. In either a Chapter 7 or 13, the debtor receives an order at the conclusion of a successful case that discharges any remaining debt. However, some debts may be non-dischargeable, and high among the non-dischargeable debts are debts related to divorce.
How To Discharge Irs Tax Debt In Bankruptcy
If all four of the conditions below are satisfied your IRS tax debt may be discharged in bankruptcy. If the debt is discharged, the penalties and interest on the taxes will also be discharged in the bankruptcy.
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Records Against Property You Own
To remove the record of your bankruptcy from the Land Charges Register you must do both these things:
- fill in Land Charges form K11 on GOV.UK – theres a £1 charge for each entry you want to cancel
Bankruptcy entries are automatically removed from the Land Charges register after 5 years if theyre not renewed. Find out more about what happens when bankruptcy ends on GOV.UK.
Does The Creditor Know You Got A Discharge
The reason that the bankruptcy paperwork requires that you list all your creditors with good mailing addresses is so they get the word when your discharge is entered. ;Notice to creditors is also about due process: ;remember from civics?
Once you get a discharge, the court mails a copy of the courts order to everyone on the list of creditors you assembled at the beginning of the case.
A creditor left off the list, or to whom a debt is transferred after the bankruptcy filing, has no way of knowing that youve discharged your debts.
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When Does The Discharge Occur
The timing of the discharge varies, depending on the chapter under which the case is filed. In a chapter 7 case, for example, the court usually grants the discharge promptly on expiration of the time fixed for filing a complaint objecting to discharge and the time fixed for filing a motion to dismiss the case for substantial abuse . Typically, this occurs about four months after the date the debtor files the petition with the clerk of the bankruptcy court. In individual chapter 11 cases, and in cases under chapter 12 and 13 , the court generally grants the discharge as soon as practicable after the debtor completes all payments under the plan. Since a chapter 12 or chapter 13 plan may provide for payments to be made over three to five years, the discharge typically occurs about four years after the date of filing. The court may deny an individual debtor’s discharge in a chapter 7 or 13 case if the debtor fails to complete “an instructional course concerning financial management.” The Bankruptcy Code provides limited exceptions to the “financial management” requirement if the U.S. trustee or bankruptcy administrator determines there are inadequate educational programs available, or if the debtor is disabled or incapacitated or on active military duty in a combat zone.
Upsolve Helps People Get Relief Without A Bankruptcy Attorney
Upsolve is a nonprofit organization dedicated to helping people get the debt relief they need. Weâve helped many people file Chapter 7 bankruptcy on their own. But, we know that isnât the answer for everyone. We also provide information about many other debt resolution options. And, if you donât qualify for our services or just prefer to have representation, we can help you find a local bankruptcy lawyer.
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How To Sue For Fraud To Avoid A Defendants Discharge In Bankruptcy
The following is an example of the type of language that needs to be pled in a complaint to alleged fraud to ensure that a debtor cannot discharge the debt in bankruptcy after the lawsuit is complete.
These elements must be alleged verbatim, combined with underlying facts, in the Complaint. In addition, you must ensure the judge includes these in the courts Findings of Fact:
Fraud must be pled with specificity regarding the facts that support the claim. Courts may also have other fraud pleading requirements.
Responding To The Complaint
You have two choices. If you ignore the complaint, the court grants a default judgment granting the relief sought in the complaint. The relief is typically a monetary judgment against you. In addition to the money you owe for the debt, the court may add additional amounts for attorneys fees, court costs, and interest. Therefore, the amount of the judgment may be much higher than the debt you owed to the creditor.;
If you respond to the complaint, you must file a response or answer with the court before the deadline given in the summons. Most states allow 20 to 30 days to respond to a complaint. It is crucial that you know the exact deadline. If you do not file your response before the deadline, the court may grant a default judgment, even if you file a response after the deadline.;
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How Can The Debtor Obtain Another Copy Of The Discharge Order
If the debtor loses or misplaces the discharge order, another copy can be obtained by contacting the clerk of the bankruptcy court that entered the order. The clerk will charge a fee for searching the court records and there will be additional fees for making and certifying copies. If the case has been closed and archived there will also be a retrieval fee, and obtaining the copy will take longer.
The discharge order may be available electronically. The PACER system provides the public with electronic access to selected case information through a personal computer located in many clerk’s offices. The debtor can also access PACER. Users must set up an account to acquire access to PACER, and must pay a per-page fee to download and copy documents filed electronically.
May An Employer Terminate A Debtor’s Employment Solely Because The Person Was A Debtor Or Failed To Pay A Discharged Debt
The law provides express prohibitions against discriminatory treatment of debtors by both governmental units and private employers. A governmental unit or private employer may not discriminate against a person solely because the person was a debtor, was insolvent before or during the case, or has not paid a debt that was discharged in the case. The law prohibits the following forms of governmental discrimination: terminating an employee; discriminating with respect to hiring; or denying, revoking, suspending, or declining to renew a license, franchise, or similar privilege. A private employer may not discriminate with respect to employment if the discrimination is based solely upon the bankruptcy filing.
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Hold Harmless / Indemnification Language
You should strongly consider including hold harmless / indemnification language in divorce agreements and orders. If a spouse is obligated to pay a divorce-related debt, the indemnification language would make it near irrefutable that the non-filing spouse has legal standing to challenge the treatment and classification and dischargeability of a debt included in the filing spouses bankruptcy.
A typical hold harmless clause would be Spouse A is responsible for the payment in full of the debt owed to XYZ Corp. in the approximate amount of $99,000.00, and shall hold harmless and indemnify Spouse B for said debt. The parties intention is that the payment of this debt is for maintenance and support of Spouse B.
Can You Exempt The Property In Bankruptcy
When you file for bankruptcy, you’re allowed to keep or “exempt” a certain amount of property. If the judgment lien gets in the way of this right, the court will likely agree to avoid it so that you maintain clear property ownership. If you aren’t entitled to exempt the asset, or if the lien is another typesuch as a voluntary lien given when purchasing a house or carthe lien will remain in place.
Example 1. Henry can exempt $5,000 in equity in a car. His vehicle is worth $4,000, allowing him to protect it in a Chapter 7 bankruptcy. However, in his state, a creditor with a judgment automatically gets a lien against all of the debtor’s personal property, including a car . His attorney files a motion asking the court to avoid the lien. Because Henry can entirely exempt the vehicle, the court agrees.
Example 2. Tiffany’s credit card company obtained a judgment for $25,000 and filed it with the Stoney County recorder’s office, giving the credit card company a lien on all of Tiffany’s real estate in the county. An exemption doesn’t cover Tiffany’s cabin. Even though she can wipe out the credit card debt in a Chapter 7 bankruptcy because the property is nonexempt , the court won’t remove the lien. After the bankruptcy, the credit card company can sell the cabin and recover the lien amount.
For more details, see What Happens to Liens in Chapter 7 Bankruptcy?
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Guardian Ad Litem Fees
Guardian ad litem fees that are ordered to be paid by the debtor spouse will be non-dischargeable. This is because the GAL is hired to protect the interest of the minor child, and the interest that they are protecting is the support and maintenance of the child. Thus, the GAL fees are in the nature of support and non-dischargeable pursuant to 11 U.S. Code § 101 and 11 U.S. Code § 523.
Bankruptcy Can Discharge Money Judgments
If you have found yourself in over your head with debt, you might already have lawsuit judgments against you. Creditors commonly file breach of contract claims against debtors over unpaid credit card debt, personal loans, and medical bills.
If you don’t respond to the creditor’s lawsuit and a default judgment is entered against you, or you do respond to the lawsuit and you lose, the court can enter an order against you for the debt you owe and other costs, including attorney and filing fees.
The money judgment may allow your creditor to garnish your wages or bank account, or take your assets in order to collect on the outstanding debt. Many people wonder if filing bankruptcy can get rid of the judgments and stop wage garnishment. Oftentimes, it can, depending on the type of original debt.
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After Filing Your Answer
After you file your answer, the court sets a hearing date. You are not required to hire an attorney, but it can be beneficial to have an attorney working on your behalf. An attorney understands the various defenses you may use to avoid a judgment. An attorney also understands the court process and how to investigate and gather evidence that could be used to win the case.
At the hearing, each side presents the facts and arguments they believe support their position. If the other party proves its case, the judge can order that you compensate the party for the amount you owe plus other costs and fees. A judgment is entered on the record and filed with the clerk of court.
The laws of each state vary slightly regarding how long a judgment remains active. In many cases, judgments remain active for at least ten years. Active means that you have a legal obligation to pay the debt and the party that you owe can take further legal action to collect the debt. In some states, a party can renew the judgment for an additional period to keep it active.
Objecting To Confirmation / Motion To Dismiss / Proof Of Claim
In a Chapter 13, the debtor must propose a plan and the plan must be confirmed by order of the Court. The plan must propose to pay back any DSO arrearage in full and must list the DSO as a priority unsecured debt . If the debtor spouse fails to properly list or account for the debts owed to the non-filing spouse, then the non-filing spouse should file an objection to the confirmation of the plan.
Additionally, if the sole purpose of the filing of the bankruptcy was to frustrate the collection of the amounts owed to the non-filing spouse, then a Motion to Dismiss for a bad-faith filing should be considered. See In re Ellis, 406 B.R. 736
Lastly, the non-filing spouse should file a proper proof of claim to ensure that they are paid and have not waived any claim to any amounts that they are owed.
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