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.
File Chapter 11 Bankruptcy To Stop Judgment
Only individuals or businesses with $1,100,000 or more of secured debts or $390,000 or more of unsecured debts can file Chapter 11. Usually, only businesses can afford to qualify for filing Chapter 11. The process for filing Chapter 11 is essentially the same as when filing Chapter 13. However, your creditors will have the right to vote on your payment plan, and the legal fees are expensive.
Act Before A Lien Is Placed On Your Property
Bankruptcy can stop a wage garnishment, even one that is in process. It can also stop most creditors from taking money from your bank account, the only exception being if you bank where you owe money. However, bankruptcy does not deal with secured debts. That means if your creditor places a lien on your home or other property, they will be entitled to continue to seize and sell those attached assets even if you file bankruptcy.
If you have received a judgment order that you cannot pay, talk to a Licensed Insolvency Trustee to find out how a consumer proposal or bankruptcy can help in your situation.
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How Chapter 13 Works
Chapter 13 is a repayment plan. If you have a regular source of income and some disposable income, you would choose Chapter 13 when:
- You are behind on your house or car payments.
- Your assets are not exempt.
- Your debts are not dischargeable.
- You have a pending foreclosure.
Under Chapter 13, the U.S. Bankruptcy Code gives you up to five years to repay your creditors. The minimum amount you will have to repay depends on how much you earn, how much you owe and how much your unsecured creditors would have received if you had filed for Chapter 7.
When Will A Creditor File An Adversary Proceeding In Bankruptcy Court
The creditor wont bother to sue you if the debt wont survive bankruptcy. For instance, if the debt is for a credit card balance and the creditor isnt aware of any fraud, youll be able to discharge it in Chapter 7 or Chapter 13.
Also, pursuing litigation is expensive, and if youre bankrupt, theres probably no money to be had. Because a rational creditor wont throw good money after bad, even a creditor with a solid case against you likely wont file an adversary proceeding.
However, each case, and each creditor, is unique. For instance, if you file a Chapter 13 case, and the creditor thinks fraud occurred, its less likely that the plaintiff will let the action go because youll have to pay into a repayment plan for three to five years, and the creditor might stand to gain something.
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Bankruptcy Doesn’t Stop Unforgivable Debts
Filing bankruptcy may give you ideas of a debt-free life. However, this is not the case for those who have debts that cannot be legally forgiven. You will still owe these debts despite filing for bankruptcy. The debts that bankruptcy cannot eliminate are:
What Is Chapter 13
Chapter 13 is a consumer debt reorganization that enables debtors to repay financial obligations affordably and in one monthly payment over a three- to five-year period. Chapter 13 is an option that is available to help take the control back from your creditors that are foreclosing on your home or repossessing your vehicle that you want to keep. Chapter 13 allows you to repay a portion of your debt through a court-approved repayment plan that you can afford. Once you successfully complete the repayment plan, the remaining eligible debt is discharged. You will also get relief from harassment by creditors, who must stop all collection activity during the term of repayment.
Chapter 13 bankruptcy is often the best choice for homeowners with more equity in secured assets than they can protect with their Ohio bankruptcy exemptions and who wish to keep these assets, or for people whose income is too high to qualify for a Chapter 7 bankruptcy. To file Chapter 13 bankruptcy you must have a regular source of income and have some disposable income to apply toward your Chapter 13 payment plan.
Is Chapter 13 right for you and are you eligible? A free consultation with an experienced and compassionate Ohio bankruptcy attorney at Fesenmyer Cousino Weinzimmer can help you decide.
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What Happens To Judgment Liens In Bankruptcy
When you file for Chapter 7 bankruptcy, you may be able to get rid of liens on your property, also called avoiding the liens. In order to be able to avoid the lien, it must meet three criteria:
- The lien is the result of a judgment a court entered in favor of a creditor who sued you for money you owed
- The lien is attached to property that you could exempt from the bankruptcy estate
- The lien reduces the amount of equity in the property that you could exempt, which impairs your exemption
A lien can be partially or fully avoided, depending on the amount of your exemptions and the amount of the judgment attached to the lien. The amount that you can avoid is subject to the exemptions that you can elect to assert based on guidance from your bankruptcy counsel.
To avoid the lien during your bankruptcy case, you need to file a motion with the court to avoid the lien. If your creditor does not respond, the court will enter an order avoiding the lien. If your creditor does reply, there will be a hearing so you can produce evidence that the lien can be avoided. If the court finds that the lien can be avoided after the hearing, it will enter an order to avoid the lien.
An Automatic Stay Stops Collection Activity
When you file bankruptcy, the court will issue a stay order. Once the stay order takes effect, you are automatically protected from your creditor. Your debt âstays’ but is not canceled as the stay order merely suspends any collection activity. This means that no creditors can call you or send any letters and file a collection lawsuit. If there is a pending suit, it will be suspended. If any of your creditors violate the automatic stay order, you can file contempt against them and make them pay for the fine and damages.
Filing bankruptcy will remain on your credit report for ten years and will have a significant impact on your credit score. You may have a hard time getting new , mortgages, or other loans. However, that will not last forever. Within a year after being discharged, you can already start to rebuild your credit score. Filing for bankruptcy is not necessarily a bad idea if you’ve explored all other options.
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Judgment Liens V Other Secured Debt
A judgment lien is treated differently than some other types of secured debt in bankruptcy. Thatâs because bankruptcy exemptions protect certain property from creditors–even a judgment creditor.
To illustrate, letâs look at two different scenarios involving a lien on a motor vehicle. If you have an outstanding balance on your car loan and the automobile was pledged as security when you purchased the car, bankruptcy doesnât undo that pledge. Bankruptcy may relieve you of personal responsibility for the debt, but the security interest remains. The secured creditor–the lender who provided the purchase money for your car–has a contractual right to take back the car if you donât pay. Under some circumstances, the bankruptcy court may be able to reduce the amount due. But, you canât simply keep the car and discharge the debt.
A judgment lien is different because there was no security contract – you didnât voluntarily grant the creditor a lien. Instead, this type of lien is entered in an attempt to collect a debt. That means exemptions apply, and you may be able to avoid the lien. Imagine that youâve filed using federal exemptions, and that your car is worth $3,000. Your credit card company has a $5,000 judgment against you, and has placed a lien on your car.
The federal exemption protects up to $4,000 in value in a motor vehicle. That means the full value of your car is exempt and the judgment lien can typically be avoided.
Does Bankruptcy Eliminate Liability For Deficiency Judgments
Its a common story in many areas of the country: real estate values have dropped and foreclosures have risen.
Borrowers with little hope of seeing their property values bounce back are still deciding to walk away from their mortgages.
Unfortunately, lenders often have the right to pursue these borrowers for a deficiency judgment. The good news is that bankruptcy eliminates personal liability for a mortgage deficiency.
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 cant 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.
How Bankruptcy Clears Lawsuits And Money Judgments
A creditor with a money judgment can use it to create a lien against any property you own, but the specific procedure will depend on your state. Here are the most common procedures:
- the judgment will automatically create a lien against your property, or
- the creditor must record the judgment with the county recorder or secretary of state to create or “perfect” the lien.
If your state follows the second approach, you might want to file your bankruptcy before the creditor records the judgment and creates the judgment lien. Once in place, the lien gives the creditor property rights similar to those your mortgage or car lender has in the house or car you put up as collateral, but broader. A judgment lien will usually cover all of your property.
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Debts Never Discharged In Bankruptcy
While the goal of both Chapter 7 and Chapter 13 bankruptcy is to put your debts behind you so that you can move on with your life, not all debts are eligible for discharge.
The U.S. Bankruptcy Code lists 19 different categories of debts that cannot be discharged in Chapter 7, Chapter 13, or Chapter 12 . While the specifics vary somewhat among the different chapters, the most common examples of non-dischargeable debts are:
- Alimony and child support.
- Certain unpaid taxes, such as tax liens. However, some federal, state, and local taxes may be eligible for discharge if they date back several years.
- Debts for willful and malicious injury to another person or property. âWillful and maliciousâ here means deliberate and without just cause. In Chapter 13 bankruptcy, this applies only to injury to people debts for property damage may be discharged.
- Debts for death or personal injury caused by the debtorâs operation of a motor vehicle while intoxicated from alcohol or impaired by other substances.
- Debts that you failed to list in your bankruptcy filing.
Secured Debts In Bankruptcy
The discharge removes a borrowers personal liability on the debt. However, the discharge does not remove liens from property. If the debt is discharged in bankruptcy, the creditor may still repossess the collateral used for the loan. For instance, if a car loan is discharged the borrower will not owe the bank any money personally. However, the car loan lender can still repossess the car because it was given as collateral for the debt. See Johnson v. Homestate Bank.
The value of secured debt on personal property is determined by the replacement value of the collateral. The valuation is based on the value, as of the date of filing. See bankruptcy law 11 U.S.C. 506. Secured debts may be discharged but a lien will likely remain on the collateral securing the loan.
How A Judgment Or Lawsuit Works
A judgment is a court order that confirms that you owe a creditor a debt.
There are three basic steps in the judgment process:
A few other facts you should know about judgments and garnishments:
- you cant go to jail for not paying your debts
- certain income cannot be garnisheed including social assistance, employment insurance and both government and private pension
- in Ontario, a creditor can only garnishee up to 20% of your wages
- in contrast, a creditor can seize up to 100% of your bank account to enforce a judgment for outstanding debts.
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How To Get Rid Of The Judgment Lien In Bankruptcy
Lets say you dont feel comfortable with the lien remaining in place.
If thats the case, youll need to file a motion to avoid the judgment lien in bankruptcy court.
To do so, youll 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 from the state court.
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Bankruptcy Does Not Eliminate Car Accident Judgments
There is a common question among individuals about whether filing for bankruptcy can wipe out car accident judgments in California. The reality is that bankruptcy does not always wipe out these judgments, and we will explain why.
For example, there are car accident judgments where you cannot discharge the judgment no matter what type of bankruptcy you file. This is especially true if some form of alcohol or drugs were involved in the accident. An individual who drives while under the influence, gets into an accident, and causes damage or kills someone cannot get the judgment discharged through bankruptcy.
Ask A Lawyer: Can Bankruptcy Clear Lawsuit Judgments
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.
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Does Bankruptcy Get Rid Of Judgments
Whether bankruptcy gets rid of a judgment depends on whether the type of debt underlying the judgment is subject to discharge through bankruptcy. For example, credit card debt, personal loans, overdue bill payments, and private debts to family and friends are eliminated by bankruptcy. However, other types of debt, such as home loans, child support, criminal fines, and alimony judgments are not eliminated by bankruptcy.
So, it really depends on the type of debt for which a judgement against you has been obtained. For those who are not familiar with what a judgment is, a judgment is a court order issued against you from a creditor, ordering you to pay them the money that you owe them.
A creditor who is able to obtain a judgment against you can perform a number of actions to obtain the money that you owe them. Actions a creditor can take include garnishing your wages, taking money directly from your bank account, or obtaining a judgment lien against you personal or real property .
There are many types of judgments and they can be obtained in a variety of civil matters, such as a civil lawsuit where you cause another person injury, small claims lawsuits, and civil lawsuits where you have failed to pay money owed to your creditor.
For example, if you failed to pay your credit card bills, your creditor may sue you to obtain a judgment against you, ordering you to pay them the amount you owe them.