May 07, 2021
Summary: Are you filing for bankruptcy and worried about a standing judgment or one that's soon to be filed? Learn how bankruptcy affects judgments in this post.
Did your creditor obtain a favorable judgment on the collection lawsuit they filed against you? If so, your wages and bank account may be garnished, and properties may be foreclosed or repossessed to satisfy your obligations. Your judgment creditor may garnish up to 25% of your disposable income, and this is the last thing that you need to happen.
If you've explored all other options, filing for bankruptcy may be a good solution for you. Push your misconceptions to the side and focus on the advantages bankruptcy can bring you. Many everyday folks have filed bankruptcy, and like them, you can obtain a fresh financial start and future good credit. For now, let's concentrate on getting rid of your legal obligations by filing bankruptcy.
Bankruptcy is a constitutional privilege given to every citizen as a solution to their outstanding unpaid debts. It is a legal process that helps individuals and businesses get rid of their debts or have them paid via a repayment plan. The purpose of filing bankruptcy is to get your debts discharged. Legal forgiveness of your debts is the primary goal.
Anyone can file bankruptcy; however, the kind of bankruptcy you are eligible to file depends on your circumstances. The most well-known is Chapter 7, but individuals and businesses with high net worths may also qualify for Chapter 13 and 11. The applicability of each Chapter depends on the value of your total assets and income. Let's look at the differences between Chapters 7, 13, and 11 and determine which chapter you are allowed to file.
To file Chapter 7, you must first pass the means test. You must be able to demonstrate that you do not have sufficient means to pay all your debts. Chapter 7 is a liquidation bankruptcy, so all of your properties and assets must be disclosed. The assigned trustee will sell all of your assets and non-exempt properties, and the proceeds will be used to pay all of your creditors.
You will be allowed to keep your exempt properties, including your home, $1,000 in each personal property and equity in a car. If you do not have a home and you are only leasing an apartment, you will be allowed to keep $5,000 in personal property and $1,000 of the equity in your car.
Chapter 13 is a reorganization. People who file Chapter 13 are those who failed the means test. In this type of bankruptcy, you can keep your properties and assets, and in return, you have to make a monthly payment to pay off all your debts within 60 months (without interest, penalties, or late fees). You will be required to propose a monthly repayment plan, which can be determined in two ways, first, via the value of your non-exempt assets, or second, via your disposable income. Whichever will pay the most significant amount off your debts will be used as the basis for determining the amount of your monthly payment.
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.
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:
A favorable judgment obtained by the creditor may be enforced by garnishing your wages, foreclosure, the placement of liens on your property, or levying your bank accounts. Fortunately, filing bankruptcy may halt enforcement of the judgment provided that the debt is a dischargeable debt. However, it will not automatically wipe out a judgment lien on your property placed before filing bankruptcy. You have to file a court motion to remove a lien.
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 ‘stays' 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 credit cards, 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.
SoloSuit makes it easy to respond to a debt collection lawsuit.
How it works: SoloSuit is a step-by-step web-app that asks you all the necessary questions to complete your answer. Upon completion, you can either print the completed forms and mail in the hard copies to the courts or you can pay SoloSuit to file it for you and to have an attorney review the document.
"First time getting sued by a debt collector and I was searching all over YouTube and ran across SoloSuit, so I decided to buy their services with their attorney reviewed documentation which cost extra but it was well worth it! SoloSuit sent the documentation to the parties and to the court which saved me time from having to go to court and in a few weeks the case got dismissed!" – James
Here's a list of guides for other states.
Being sued by a different debt collector? We're making guides on how to beat each one.
Is your credit card company suing you? Learn how you can beat each one.
Need more info on statutes of limitations? Read our 50-state guide.
Need help managing your finances? Check out these resources.