How Are Judgments Treated In Bankruptcy?

Bankruptcy Treatment of Judgments

Many debtors wait until they are facing a creditor lawsuit, wage garnishment or bank levy before they file bankruptcy. If this is the case, the debtor usually has at least one judgment against them already. Can these judgments be discharged in bankruptcy?  In some cases yes, but it will depend on a few factors; let’s take a look at the facts.

What Type Of Debt Is It?

If the judgment is a priority debt such as taxes or child support, the bankruptcy debtor may not be allowed discharge the judgment. However, they can use Chapter 13 bankruptcy to repay the debt over a period of 3 to 5 years. If the debt is not a priority debt, it may be discharged in bankruptcy if the debtor files Chapter 7 bankruptcy .

If the debtor files Chapter 13 bankruptcy, the judgment may be fully or partially discharged depending on the terms of the debtor’s repayment plan. However, bankruptcy debtors should be ware that a judgment on an unsecured debt can transform it into a secured debt giving it priority over other debts. For example, if a credit card company wins a judgment and the debtor decides to file Chapter 13 bankruptcy that judgment might be paid before other credit card debts.

Does The Creditor Successfully Object?

Creditors who have gone through the trouble of winning a judgment in court are more likely to fight to have their debt declared nondischargeable in bankruptcy. Creditors are known for accusing a bankruptcy debtor of fraudulently getting credit by lying on their application or of purposely charging up debt with no intention of repaying it. These types of bankruptcy tactics have become more common in recent years as debt defaults have risen.

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