We have had a number of clients in the past who have had their debts wiped out. Then, two or three years later, they come to us because they were buying a house or refinancing a home. They tell us that all of a sudden a judgment appeared on their record that they did not know about, and the creditor is claiming this judgment should be paid.
Bankruptcy normally wipes out unsecured debts by wiping out (the legal term is “discharging”) your personal obligation to pay. However, there is an unusual quirk in the bankruptcy law as follows:
If a judgment has been entered against a client (meaning that the client has been sued before the bankruptcy, and the creditor has won), that judgment can often survive bankruptcy.
Let’s give you an example. What if you have a credit card debt of $5,000 and you want to wipe it out in your bankruptcy? Normally you can wipe that debt out, and you don’t have to pay.
What if, however, before you filed your bankruptcy the credit card company sued you for $5,000, and they obtained a judgment against you? In most circumstances that judgment will survive the bankruptcy. This means that the credit card company cannot come after you to collect on the money. But beware. The judgment can come back to haunt you someday in the future.
The judgment creditor cannot put a freeze on your bank account or attach your wages or anything like that. Nevertheless, this judgment can remain on the record for 20 years. This can affect you if you are presently a real estate owner or you become a real estate owner in the future.
We have had a number of clients in the past who have had their debts wiped out. Then, two or three years later, they have come to us because they were buying a home or refinancing a home. They tell us that all of a sudden a judgment appeared on their record that they did not know about, and the creditor is claiming that this judgment should be paid.
There is usually a simple solution to these situations. One answer is that one year after you get a bankruptcy discharge, you can normally file a motion in the State Court to avoid any judgment that was obtained before the bankruptcy. Taking this action will release any lien or judgments against your property. By taking this action you won’t have to worry about judgments and liens preventing you from purchasing or refinancing a home in the future.
There is another option. You do not have to necessarily wait for one year after your bankruptcy discharge. We can actually file a motion in the Bankruptcy Court while your bankruptcy case is active.
One more option is to reopen your bankruptcy case after it has been closed and make a motion to invalidate the judgments or liens, but that would probably be more costly.
What if you owe surcharges on your license and the Motor Vehicle Commission has taken out what is known as a “statutory lien” against you? This also could haunt you in the future after your bankruptcy has been discharged. This is similar to having a judgment against you as stated above and you also need to take action to wipe out those liens. Otherwise you may have problems later.
The important points to understand are as follows:
- Your bankruptcy wipes out your personal obligation to pay a debt, and you do not have to worry about a creditor harassing you to collect it.
- If you have a judgment against you that was obtained before you filed bankruptcy, either from somebody having sued you or for something like a motor vehicle lien, or even a lien from unemployment for some sort of improper payment of unemployment benefits, these things can come back to haunt you at a later date. You need to take special action (in addition to your bankruptcy filing) to get rid of these judgments and liens.
- The way to start to resolve these issues is by first letting us know about these judgments or liens. We can do a judgment search or title search, but that costs money, and we don’t want you to have to spend money to obtain information that you may already have in your records.
- One year after you have obtained your bankruptcy discharge, we can file a motion in the State Court with respect to each judgment or lien.
- There is a fee for filing these motions and the fee is based upon the complexity of the motion. In general, the minimum fees and costs run between $350 to $400. This is not something that you need to do now, but this is something you need to be aware of for the future.
- The other option, as discussed above, is to file a motion while you are in bankruptcy. This may be easier because it is often better to get rid of these judgments and liens while you are in bankruptcy. A motion of this nature filed in Bankruptcy Court will only be granted if your bankruptcy is totally successful and you have obtained a discharge. If you want us to file such a motion while your bankruptcy is active, let us know and we can work out an arrangement with you for your payment of our additional fees.
These are important issues. If they relate to you, and if you have a judgment or some kind of lien against you, make sure to tell us about it. That way we can deal with it in the proper fashion so it will not cause unanticipated problems for you in the future.