Can I File for Bankruptcy if I Have a Judgment?

Key Takeaways

• A judgment does not stop you from filing.
• Discharge wipes the debt but leaves the lien on your property.
• A large mortgage usually makes the lien avoidable in full.
• It takes a motion, and the order should be recorded with the county clerk.

One of your outstanding creditors may file a lawsuit and obtain a judgment to collect the debt you still owe them. Once this judgment is placed against you, you may be unsure what this means for the eligibility and timing of the bankruptcy filing you were considering. Overall, you may be concerned whether this will serve as another barricade in the way of your financial relief. If this is where your worries lie, please follow along to find out whether you can file for bankruptcy if you have a judgment against you and how a proficient Rockland County bankruptcy attorney at The Law Offices of Allen A. Kolber, Esq., P.C. can help you get through this very tricky financial situation.

Can I File for Bankruptcy if I Have a Judgment Against Me?

In short, your ability to file for bankruptcy may be unaffected by a judgment currently placed against you. However, it may help your case to submit your bankruptcy petition before your bankruptcy creditors take such action. This is because once you are in the midst of your bankruptcy proceedings, your creditors are typically barred from participating in any further collection activities, such as collecting through a judgment. This is otherwise known as the automatic stay provision in bankruptcy law.

Can My Bankruptcy Filing Eliminate a Judgment Against Me?

While your bankruptcy filing may be able to stop your outstanding creditors from pursuing a judgment against you, it may not change their lien rights. That is, your bankruptcy case may do so much as discharge your eligible debts. Subsequently, this may eliminate your creditor’s judgment if it is for a dischargeable debt. However, your creditor’s judgment may create a lien, which essentially gives them the right to seize and sell your property to pay off your remaining debt.

With this, however, you may attempt to eliminate part or all of a lien. To begin, you may file a motion with the bankruptcy court to avoid (eliminate) the lien. For this to work, you will need to show the court that the lien interferes with an exemption you are entitled to claim. In Rockland County, the law currently exempts up to $204,825 of equity in the home you reside in, $5,500 in motor vehicle exemptions, and $1,325 for jewelry or artwork, among other exemptions.

How Does the Calculation Work?

Lien avoidance is arithmetic rather than argument, and the formula is set out in the Code itself. Add three figures together.

• The judgment lien
• Every other lien on the property, including your mortgage
• The exemption you could claim if there were no liens at all

If the total exceeds the value of the property with no liens against it, the judgment lien will impair your exemption, and may be avoided to the extent of the excess. Often, that would mean the whole thing goes.

For example, a Rockland home worth $400,000, a mortgage of $350,000, a $40,000 judgment lien, and the $204,825 homestead exemption. The three figures total $594,825 against a value of $400,000, so the lien is avoided in full. The mortgage being large is ultimately what makes this work, and homeowners who assume a judgment has trapped them are generally wrong.

What It Does Not Reach

The tool is typically narrower than it first appears. It applies to judicial liens, so a mortgage or consensual lien that you agreed to falls outside of the scope. This also does not apply to a judicial lien securing domestic support obligations like alimony, child support, or spousal maintenance, which will remain regardless of what the math says.

You Have to Ask, and Then Record It

It is important to understand that nothing about this process is automatic. Your discharge alone will leave a judgment lien sitting on the property, and a motion must be filed and granted. Once this happens, the lien will not return if the home later increases in value, so the benefit is permanent. You’ll need to have the order recorded with the county clerk, as a lien avoided on paper but still showing on the record will appear the next time you sell or refinance your home.

Otherwise, going outside of your bankruptcy case, you may attempt to settle and satisfy the judgment of your own accord. Then, you may request that your creditor file a satisfaction of judgment with the court on your behalf.

Contact an Experienced New York Bankruptcy Law Firm

In conclusion, at The Law Offices of Allen A. Kolber, Esq., P.C., we share the same goal as you, which is likely to achieve financial relief through the U.S. bankruptcy court system. So please do not hesitate to contact a talented Rockland County bankruptcy attorney from our firm today.