Can You Discharge Court Judgments in a Chapter 7 Bankruptcy?

Bankruptcy is an excellent way of getting rid of unsecured debts. Because a court judgment is a type of unsecured debt, many people wonder if they can discharge the judgment by filing for Chapter 7 protection. The answer is “maybe.”

You can discharge some judgments but not others. And some judgments might qualify for discharge, but only if the judgment creditor doesn’t object.  Contact a Chapter 7 bankruptcy lawyer at Resolve Law Firm to review your case. Court judgments represent a considerable debt pile for many, and it’s best to eliminate those that you can.

What Are Court Judgments?

When someone sues you, they usually seek financial compensation. If they win, the plaintiff receives a judgment against you for a certain amount of money. This judgment represents an obligation—you need to pay it.

The person who obtains the judgment against you is a judgment creditor. If you don’t voluntarily pay, then they might take certain collection activity, such as putting a lien on property, levying bank accounts, or asking the sheriff for a till tap.

A court judgment is a type of unsecured debt. When you file for bankruptcy, you should list court judgements.

Is the Underlying Debt Dischargeable?

Whether you can discharge a judgment depends on whether the underlying debt qualifies for discharge.

For example, the following would likely qualify:

• Personal loans. If you default, the lender will likely sue and secure a court judgment.
• Credit card debt. Many banks which issue cards will also sue if you default.
• Personal injury judgments. You could negligently injure someone, such as in a car accident or in a slip and fall on your property. The victim can sue for financial compensation and obtain a judgment.
• Medical debt. Doctors and hospitals often sell debt to collectors, who might sue you.

These are examples of debts which are usually dischargeable in bankruptcy, so you can discharge the court judgment against you.

What Debts Aren’t Dischargeable?

Not every judgment will qualify. You can’t discharge a judgment based on the following debts:

• Injuries caused by drunk driving. If you get into a crash while driving under the influence of drugs or alcohol, then you can’t discharge the personal injury judgment against you.
• Most taxes. These are hard to discharge in any event.
• Criminal restitution or fines. Most crimes have a fine as a penalty. Also, you could be ordered to provide restitution to any victims in the form of payment. You can’t discharge them.
• Family law obligations, like child support or alimony arrearages. Your ex might sue and reduce the amount owed to a judgment, which will likely begin accruing interest.
• Other judgments fall into a gray area. You might discharge the following but only if the judgment creditor doesn’t object:
• Fraud. You might have defrauded someone by lying to obtain money or goods. The victim can sue you in court.
• Embezzlement. A person with lawful access to funds might take them for their personal use. This is embezzlement. A school treasurer who steals from the school’s account has committed embezzlement.
• Intentional misconduct, such as assault or battery. You might intentionally hurt someone, who then sues you.

Imagine you were driving drunk and smashed into a car stopped at an intersection. The driver suffers serious head and neck injuries and sues you. He wins a judgment. Because this injury stemmed from drunk driving, you can’t discharge it in bankruptcy.

Now imagine you intentionally hurt someone, such as getting into a bar fight. For no reason, you punch someone in the face. They fall backwards and suffer serious injuries. You can include this judgment in your bankruptcy and ask a judge to discharge it. However, if the creditor objects, then a judge will disallow it.

What if a Judgment Creditor Put a Lien on Your Property?

Judgments themselves are simply pieces of paper. It’s up to the defendant to pay the judgment creditor. If they don’t, then the creditor can take certain actions, including putting a lien on your property. This lien will give them a right to payment if you sell or transfer the property. The judgment creditor might also force a foreclosure sale.

Liens usually survive bankruptcy. That means you can’t strip them off. Even if you complete a Chapter 7 bankruptcy successfully, the lien is still on your property. The debtor might not be able to garnish your wages, but they can foreclose and get payment because of the lien.

You might qualify for lien avoidance in Chapter 7 if:

• The lien arises from a money judgment. You can’t avoid a lien that you consent to or which is a statutory mechanic’s lien or child support lien.
• You must be entitled to an exemption on the property which is encumbered by the lien. Check California’s exemptions.
• The lien would cause you to lose some of the equity you could exempt.

You should work with an attorney if you are interested in lien avoidance. You might be able to avoid all or part of the lien.

It is best to act quickly. You will want to keep the creditor from foreclosing on your property, because you can’t unwind a completed foreclosure.

What if there isn’t Yet a judgment?

You might be accused of injuring someone or defrauding them. However, the alleged victim has not yet filed a lawsuit, so they haven’t won a judgment. What should you do?

Now might be the best time to file for bankruptcy. In this situation, it’s up to the injured victim to come into bankruptcy court and prove that you defrauded or injured them. Should the victim not show up to court, then you can win your case and probably eliminate the debt.

Call a Chapter 7 Bankruptcy Lawyer to Discuss Court Judgments

Bankruptcy helps consumers obtain a fresh start, and court judgments can hang over your head for years. It’s best to tackle them head on, if possible, and bankruptcy is an excellent option. With a Chapter 7 bankruptcy, you can discharge qualifying debts in under 6 months. Contact us to schedule a free consultation with a member of our legal team.