Individuals or businesses that are finding it difficult to pay their creditors may want to consider filing for Chapter 7 or Chapter 13 bankruptcy in the U.S. Bankruptcy Court, in one of Texas’ four judicial districts. These programs involve the institution of a case in federal court for the purpose of reducing or eliminating individual debt. A third type of bankruptcy, Chapter 11, is available to businesses.
Learn more about Houston bankruptcy attorney, Seth Kretzer, who is ready to answer your questions about bankruptcy today.
Chapter 7 and Chapter 13 bankruptcy are distinct from one another, and each is available to an individual depending upon the severity of his or her personal debt. Chapter 7 bankruptcy is known as “liquidation bankruptcy,” and involves most of the filer’s property being sold to pay off debts. It is generally used by people who have limited income or no income and lack the ability to pay back any portion of their debts for the foreseeable future.
Chapter 13 bankruptcy, on the other hand, is known as “reorganization bankruptcy.” Filers of Chapter 13 bankruptcy work with the court to develop and follow a court-ordered repayment plan. Chapter 13 filers usually keep their personal and real property while paying back a portion of their debts.
Following the proceedings of Chapter 7 or Chapter 13 bankruptcy, the Bankruptcy Court will “discharge” unpayable debts.
You may be wondering, ‘in addition to bills and loan payments, can I file bankruptcy on a civil judgment which was entered against me’ or ‘can I file bankruptcy on a court-ordered judgment’? Further, ‘will filing a bankruptcy stop a judgment?’ The answer is yes, a judgment is another type of debt that can be entered into a bankruptcy filing, and ultimately, can be discharged. A discharged debt is a debt that no longer has to be paid, and the person or business who issued the credit to the debtor can no longer collect on the debt.
Does Bankruptcy Clear Judgments?
Does bankruptcy stop judgments? Does bankruptcy eliminate judgments? Yes, and yes.
A judgment results when a court rules in favor of a creditor, either because the debtor failed to respond to a lawsuit against him or her (called a default judgment) or the matter was fully and fairly determined by a judge or jury (a judgment on the merits).
The majority of judgments stem from breach-of-contract actions brought in Texas state court. To learn more about different types of judgments, contact judgment collection attorney in Houston, Seth Kretzer. Chapter 7 or Chapter 13 bankruptcy can both clear court judgments, as further discussed below.
Can a Judgment Be Discharged in Bankruptcy?
A judgment can be cleared, or “discharged,” in bankruptcy. First, the filing of a federal bankruptcy action places an automatic “stay” on collection lawsuits, which are at the state level and thus preempted by the federal proceeding. If such a lawsuit is still pending, the bankruptcy’s automatic stay will stop it from moving forward. Nothing can occur in a lawsuit which is stayed.
After the bankruptcy proceeding is complete, a debtor’s attorney should file a motion notifying the court that the debt associated with the stayed lawsuit has been discharged. This will likely result in dismissal of the lawsuit.
Further, even if the lawsuit has already resulted in a judgment against the debtor, any discharges of debt which occur during bankruptcy will still eliminate liability in most cases. So, if you are wondering ‘does filing a bankruptcy stop a judgment?,’ the answer is again, yes. Bankruptcy can short circuit both the action and the judgment, meaning you can file a bankruptcy before a judgment, or you can file a bankruptcy after a judgment, and often obtain the same result.
The exceptions to this notion are where judgments are for a select type of “nondischargeable” debts. Bankruptcy cannot get rid of certain debts, including:
- domestic support obligations such as child support and alimony
- criminal penalties, fines and restitution
- certain types of taxes
- student loans
- debts acquired by fraud, misrepresentation or false pretenses
- debts resulting from willful and malicious injuries caused by the debtor
- debts connected with death or injury caused by the debtor’s drunk driving.
Can Judgments Be Discharged in a Chapter 7 Bankruptcy?
Yes, judgments can be discharged in a Chapter 7 liquidation bankruptcy because Chapter 7, by design, protects filers who can no longer afford to pay on their debts.
Occasionally, certain debtors – such as a utility company – will fight to make an ordinarily dischargeable debt into a nondischargeable by way of filing an “adversary proceeding” in bankruptcy court. An adversary proceeding is a challenge to the discharge of a debt by a particular creditor.
By way of nonexclusive example, the following types of debts often trigger the filing of adversary proceedings:
- injury caused by a willful or malicious act
- fraud used to obtain money, goods or services such as lying on a credit application
- fraud committed while in a position of trust, such as embezzlement
Does Bankruptcy Discharge Liens?
When you receive a bankruptcy discharge, it wipes out your personal liability for all discharged debts. This means that you are no longer obligated to pay those debts and creditors can’t sue you personally to collect them. However, filing for bankruptcy does not automatically remove liens that have been placed on your property.
If a creditor obtains a lawsuit judgment against a debtor, the creditor can enforce that judgment in different ways including garnishing wages, levying bank accounts, or placing liens against properties owned by the debtor such as the debtor’s house. If a judgment lien has been placed on property, the debtor must file a motion with the court in order to remove it. Always be aware of the necessity of filing the motion, an important procedural step best handled by a skilled attorney.
Also, note that not all liens can be removed through bankruptcy. Whether a judgment lien can be removed depends on the value of the property, the amount of the lien and other encumbrances on the property, and laws about exempt property in Texas. Because the rules and procedures regarding lien removal can be complex, talking to a knowledgeable Houston judgment liens lawyer like Seth Kretzer may be the best course of action.
What Happens to Judgments After Bankruptcy?
Following bankruptcy, except for certain judgments and certain special circumstances as discussed in this article, judgments are generally discharged. This means they can never again be collected or pursued.
The Law Offices of Kretzer and Volberding P.C. Can Help with Bankruptcy and Judgment Issues
Whether you are considering filing for Chapter 7, Chapter 11, or Chapter 13 bankruptcy, you will need a lawyer with specific experience on bankruptcy in Texas and who has the right knowledge and resources to help you.
Contact the Law Offices of Kretzer and Volberding P.C. today through our website to discuss your case.