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Legal Troubles And Filing For Bankruptcy

by Layla Bryant

Bankruptcy provides filers who have money troubles with a way of making a fresh start. Not only does a chapter 7 bankruptcy filing eliminate nearly all consumer debt, but it also puts a stop to detrimental creditor actions. To find out what might happen to a debtor's court cases when they file for bankruptcy, read on.

When Creditors File a Lawsuit

Getting behind on your bills can prompt a number of actions in an attempt to collect on a debt. Depending on the nature of the debt, you can suffer from a variety of punitive actions. For example, if you fail to make mortgage payments, your home may be foreclosed upon. If you fail to pay your car payment, your car can be repossessed. If you fail to pay medical or credit card bills, you may be sued. While bankruptcy has its own ways of dealing with foreclosures and repossessions, court judgments are a bit trickier.

Court Judgments and Bankruptcy

When a creditor sues you for an unpaid bill, they will usually win a judgment against you. That means you are legally obligated to pay the original debt, interest, penalties, and court and legal fees. A bankruptcy filing should include all court judgments against you, and if the debt that caused the judgment is discharged, so is the judgment. Unfortunately, there is more to the story.

Court Judgments and Liens

Court judgments are not simply another attempt to get you to pay a bill – they have teeth. A court judgment often comes along with liens and wage garnishments. A lien on property like real estate effectively freezes that property. You cannot sell property that has a lien attached to it. In most cases, bankruptcy will "lift" a lien, but in some cases, filers must file a separate action to have the lien removed as part of the bankruptcy case.

Other Things to Keep in Mind

Even if you are unable to have a lien lifted, if the debt that caused the lien has been forgiven with bankruptcy, it's considered an "empty" lien – there is no debt associated with it, so it means nothing. There are, however, some debts that can cause liens that are immune to the protective actions of bankruptcy. If you have the following types of debts, speak to your bankruptcy lawyer:

  • Liens for back taxes owed to the IRS, state taxes, property taxes, etc.
  • Liens on property placed there due to back child support payments.
  • Liens placed due to criminal court proceedings such as fines, court fees, legal fees, victim restitution, etc.

Speak to a bankruptcy lawyer, such as Greg Dunn Bankruptcy Attorney, about judgments and liens sooner rather than later.