Can I Receive a Bankruptcy Discharge if There is a Judgment Against Me?

If a consumer fails to pay a creditor what she owes that creditor, the creditor likely will begin attempting to collect on the debt. At first, the creditor likely will make contact with the debtor, urging the debtor to pay what she owes. If the debtor does not make payments, after a certain amount of time, the creditor may sell the debt to a third-party debt buyer, or the creditor may file a lawsuit against the debtor. If the creditor does file a lawsuit against the debtor and wins a judgment, can the debtor get rid of the judgment by filing for bankruptcy?
A judgment does not prevent a debtor from filing for personal bankruptcy. However, whether bankruptcy can erase the judgment depends on a number of factors. To answer this question, we want to provide you with more information about how a judgment works, and how a lien can affect your ability to discharge the debt and everything you may owe to the creditor.
When a Creditor Files a Lawsuit and Wins a Judgment
When a debtor is unable to pay her bills, the creditor may file a claim against the debtor. The debtor will be served with court papers, and typically will have the option to settle the case, to go through some type of alternative dispute resolution (ADR) such as mediation or arbitration, or to let the case move forward. If the debtor does not respond and does not go to court, the court can enter a default judgment against the debtor. Even if the debtor shows up to court, it is possible that the court will find in favor of the creditor and enter a judgment against the debtor.
When the court enters a judgment against a debtor, that debtor might consider personal bankruptcy. However, it is important for the debtor to know that, if she fails to pay on the judgment, Illinois law makes clear that the judgment can become a lien on any real estate that the debtor may own. The lien can allow the creditor to force the debtor to sell the property in order to pay off the judgment, but the creditor will not necessarily do this. Under Illinois law, a lien of this type remains on the property for seven years, and the law allows a creditor to renew the lien up to two times (for a total of 21 years in some cases).
What does a lien have to do with filing for Chapter 7 bankruptcy? In short, if a debtor has a judgment against her and a lien on real estate, filing for bankruptcy and getting a discharge will not completely wipe away the debtor’s connection to the creditor.
How Judgments and Liens are Handled in a Consumer Bankruptcy Case
How do bankruptcy courts handle judgments and liens in a personal bankruptcy? First, if you have a judgment against you, it is possible to have it discharged in your bankruptcy case as long as the debt is dischargeable. There are some types of debt that are not dischargeable. If the debt from the judgment is a non-dischargeable type, you can not get rid of the judgment through bankruptcy. However, if the debt is dischargeable, it is likely that you can discharge the liability you owe from the judgment.
If there is a lien on your property connected to the judgment, you can not simply get rid of the lien by filing for bankruptcy. Instead, you will need to file a lien avoidance action, and you will need to be able to show that some of the real property tied to the judgment lien is exempt according to the bankruptcy exemptions. If you do not file a lien avoidance action, the lien will still be attached to your property even after you receive a bankruptcy discharge.
Learn More from an Oak Park Bankruptcy Attorney
Judgments and liens in bankruptcy can be extremely complicated, but an experienced Oak Park bankruptcy lawyer can help. Contact the Emerson Law Firm today to learn more about how we can assist with your bankruptcy case.
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