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Scura, Wigfield, Heyer, Stevens & Cammarota Blog

Can You File for Bankruptcy When Faced With Judgment Debt?

[fa icon="clock-o"] September 14, 2016 [fa icon="user"] David E. Sklar [fa icon="folder-open'] Bankruptcy

automatic_stay_on_file_folderBankruptcy is something that no one wants to consider. Many people feel that filing for bankruptcy is an admission of failure in life and something that they can never recover from. Often people think that no one can relate to what they’re going through and that there’s no way out of the hole that they’re in.  However, it’s important to know that many people are going through the same problems that you’re currently going through and bankruptcy can be the right tool to get the fresh start that you need. One common scenario in which people turn to bankruptcy to remedy is when they’re saddled with judgment debt. 

Avoiding Post-Judgment Collection

When an individual or entity obtains a judgment against you, they will generally engage in post-judgment collection efforts. These efforts can range from wage garnishment to levying on a bank account to seizing and selling property owned by the judgment debtor. Additionally, this can result in harassing phone calls where creditors are calling at all hours of the day requesting payment of the past due debt. If you’re in this situation thinking there is no way out, bankruptcy may be the answer for you to be able to move on with your life. 

Protection From the Automatic Stay Upon Filing for Bankruptcy

Upon filing for bankruptcy, something known as the automatic stay comes into effect. Section 362 of the bankruptcy code provides the statutory authority for the automatic stay. This means that all creditor collection actions against property of the bankruptcy estate and the debtor must stop immediately. 

Generally, the phone calls stop immediately upon creditors being notified of a pending bankruptcy proceeding. If you were to think of it in terms of a sports analogy, think of it as a timeout where everything stops. A wage garnishment against a debtor must cease immediately upon a debtor filing for bankruptcy protection due to the automatic stay. 

Protecting Funds in Your Bank Accounts That Have Been Levied

If your bank account is being levied, it’s important to be cogniscent of whether a motion for turnover of the levied funds has been filed by a creditor. In New Jersey, up until the order for turnover is entered, the debtor has a property interest in the money held within a bank account. Therefore, if a bankruptcy is filed prior to an order for turnover being entered by the State Court, then the levied funds are still property of a debtor’s bankruptcy estate

Accordingly, upon a debtor filing for bankruptcy, a creditor must release a levy on a bank account when the bankruptcy is filed prior to an order for turnover being entered by the State Court due to the imposition of the automatic stay. 

So in laymen’s terms, if you file for bankruptcy after a creditor levies your bank account but before an order for turnover is entered, you get your money back. On the other hand, if you file for bankruptcy after an order for turnover is entered, you do not get your money back.

The Effect of a Bankruptcy Discharge

At the end of your bankruptcy case, after the court enters a discharge of your debt, you’re no longer personally liable for that debt. This means that a creditor cannot contact you seeking to collect upon that debt. If a creditor does contact you to collect a discharged debt, then they are subject to penalties and that creditor may be liable to you for damages. Outstanding judgments are amongst the types of debts that can be discharged in a bankruptcy[1].

The bankruptcy discharge can provide you with the fresh start that you need to move on with your life. If you have judgments against you and are looking for a way out, please contact us by clicking below so we can discuss your situation to determine if bankruptcy is your best option. 

Contact the Scura, Wigfield, Heyer, Stevens & Cammarota Law Offices Today and  Let Us Help You!             

[1]Some debts cannot be discharged.  It is important to consult with your attorney as to the nature of the judgment against you, so that your attorney can advise you as to your ability to discharge that debt through a bankruptcy.

Posted by David E. Sklar

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