How Debtors Should Handle Judgments In Bankruptcy

How to Handle Judgments In Bankruptcy

While filing bankruptcy stops a judgment from being enforced, judgments
can transform unsecured debts into secured debts in
bankruptcy, giving them priority.

Below are a few tips on how debtors should handle judgments when filing
bankruptcy:

1. Tackling judgments in bankruptcy is an area where prevention really is
   better than a “cure.” If a debtor is facing a lawsuit by a credit
   card company or other lender, they should immediately file bankruptcy
   if that is in their best financial interest. Once the debtor files bankruptcy,
   it will stop the lawsuit from continuing and prevent the entry of any
   judgment against the debtor.
2. If a judgment has already been won against the debtor, filing bankruptcy
   will prevent the judgment from being enforced. However, judgments may
   be treated as
   liens in bankruptcy, effectively turning unsecured debts into secured debts.
   For example: If a credit card company won a judgment against the debtor
   for $20,000 before bankruptcy, the judgment would become a lien against
   the debtor’s assets and have priority over other unsecured debts.
3. Once the debtor has filed bankruptcy, they need to consult with their bankruptcy
   attorney about “stripping the judgment” making it unenforceable
   or void. By stripping the judgment in bankruptcy, the debtor prevents
   the debt associated with the judgment from becoming secured. This action
   is especially important in
   Chapter 13 bankruptcy where unsecured creditors receive less money in the repayment plan than
   secured creditors. Stripping a judgment in Chapter 13 bankruptcy can effectively
   reduce the amount of money a debtor must repay in the three to five years
   they remain in their plan.