Chicago Bankruptcy Question: How are state court judgments treated in Chapter 7?

Chicago Bankruptcy Question of the Day: How are state court judgments treated in Chapter 7?  When it comes to state court judgments, timing is everything.  When you fall behind on a debt, the creditor has a right to pursue you in state court in an effort to collect on that debt.  Generally speaking, a complaint is filed with the state court and a summons is issued.  This is one of the common financial warning signs telling you that you should seek the advice of a Chicago bankruptcy attorney.  If you fail to appear, which is usually the case, then the court will enter a judgment against you (known as a default judgment).  Even if you do appear, unless you have a good defense the state court will eventually allow a judgment to be entered against you.

Standing alone, the entry of a judgment doesn't mean all that much.  It is simply an order issued by the state court declaring that you do indeed owe the debt.  What happens after the entry of the judgment is troublesome.  If no further action is taken by you, the creditor can then take one of several actions.  If you own real estate, the judgment can be attached to your real estate, where it will remain, collecting interest, until it is either paid off or stripped off.  The creditor could file a Citation to Discover Assets, through which they will seek either a wage garnishment, seek to freeze a bank account or seek to recover some other asset of yours to satisfy the debt.

Filing for Chapter 7 bankruptcy protection will almost always help when there is a judgment either pending or already entered against you.  When you file for Chapter 7 bankruptcy protection, the bankruptcy court issues the automatic stay of bankruptcy, which is basically an injunction against your creditors telling them that they must cease any further collection action against you.  If a judgment is not yet entered, then the collection lawsuit must stop immediately.  If the judgment has been entered, then the creditor cannot attach the judgment to your property or file a Citation to Discover Assets to pursue a wage garnishment or bank account. 

In the cases where a judgment has been entered and the creditor has attached the judgment to your property or bank account, then filing for Chapter 7 bankruptcy protection will often allow for the lien to be removed.  This is not absolute, as there will be questions regarding equity in the property and available exemptions, but more often than not, the judgment lien can be removed by a simple motion in the Chapter 7 bankruptcy.  If a wage garnishment has begun, the filing of the Chapter 7 bankruptcy will immediately stop the wage garnishment.  Funds already received by the creditor, however, are theirs to keep.

At the end of the Chapter 7 bankruptcy, you should receive a discharge, which eliminates your liability on the debt and bars the creditor from ever pursuing collection on the debt again.  This presumes, of course, that the debt is dischargeable in bankruptcy in the first place.  Even if it is not, the Chapter 7 bankruptcy will at least stop the lawsuit and protect you during the life of the case.

If you have a state court lawsuit against you, or a judgment already entered, and are considering filing for Chapter 7 bankruptcy in the Chicago area, you need to have an experienced Chicago bankruptcy attorney representing you.  A good bankruptcy lawyer will review the existing state court actions, search for liens already placed, advise you regarding the timing of the state court actions and prepare your Chapter 7 petition in order to ensure that, if possible, the judgment liens already in place can be removed.  The Chicago bankruptcy attorneys at Ledford & Wu have helped thousands of clients stop state court lawsuits, eliminate judgments, strip liens from bank accounts and real estate and helped their clients reach the goal of a fresh start.  Call today for a free consultation.

No Comments

Leave a comment
Comment Information

Need Help With A Specific Issue?