Bankruptcy And Judgment
A debtor applying for bankruptcy protection is almost the worst judgment enforcement roadblock a judgment creditor can face
. The moment you discover that your judgment debtor has filed for bankruptcy protection, you need to stop any debt and judgment collection actions. My articles are my opinions, and not legal advice. I'm a judgment broker, and not an attorney. If you ever want a strategy to use or legal advice, you should contact a lawyer.
When a person or entity files for bankruptcy, their automatic protection stay starts. An automatic stay applies to all of a debtor's known (and perhaps even their unknown) debts, including all lawsuits or judgments which originated before their bankruptcy filing. The debtor's automatic stay prohibits any collection actions against a debtor and their assets. When a debtor files for bankruptcy protection, it is illegal to even call the debtor, asking your debtor about payment for any of their debts or judgments.
A bankruptcy automatic stay is totally automatic. It begins at the time and date of the filing of the bankruptcy petition. An automatic stay doesn't depend on a written order from a judge, for a bankruptcy stay to take immediate effect. When anyone, including a judgment owner, knowingly violates a debtor's automatic stay, they can be found to be liable for damages, attorney's fees, and perhaps also punitive damages.
In community property states, an automatic stay also usually stops a judgment owner from their goal of the recovery of a judgment against the community property assets of a judgment debtor's spouse. When a creditor thinks that their judgment debtor has filed for bankruptcy protection; they should stop any judgment recovery or debt recovery activities, until they can verify that a bankruptcy filing hasn't taken place.
An automatic stay begins at the time of the bankruptcy filing, whether it is a chapter 7, 9, 11, 12, or a 13 bankruptcy proceeding. An automatic stay remains in effect until the debtor's bankruptcy proceeding is concluded, dismissed, denied, or until the discharge of the debtor's debts is approved. If your judgment or debt is discharged in the debtor's bankruptcy, it's game over, the debt or judgment is gone.
While there are certain judgments that may ultimately prevail after their judgment debtor's filing for bankruptcy protection, one must still honor the automatic stay while it lasts. Automatic stays usually last while a bankruptcy case is still proceeding. When a creditor files an adversarial action, and a bankruptcy judge approves it, the creditor may get a leave of the automatic stay, and be permitted to collect the judgment or debt, and other creditors won't be allowed to recover from that debtor.
When your judgment debtor files for bankruptcy protection it is usually death for judgments, so it is the number one enemy of every judgment collection. When you think your judgment debtor has or will file for bankruptcy, It's wise to check the bankruptcy status prior to each step, with PACER; the Federal Court web site. PACER is very cheap, and almost a must for anyone who collects judgments or debts.
Bankruptcy is so serious, it can be used by judgment debtors to trick creditors. For every 3 debtors that say they will go bankrupt immediately, one really will. Bankruptcy is so serious that some judgment owners don't verify a bankruptcy filing, they simply walk away.
One more game some judgment debtors try, is to apply for bankruptcy, but not actually follow up on their bankruptcy case. They simply apply so that they can get the automatic stay. Some creditors presume a bankruptcy filing means that their money judgment gets discharged automatically, however that happens only after their judgment debtor's bankruptcy successfully finishes and the court orders that. That's one more reason to get and use a PACER account.
Judgment creditors should be aware about the judgment debtor's bankruptcy court status. When their debtor's bankruptcy case is dropped, dismissed, or denied, the judgment owner can then crank up the judgment recovery machinery once again.
by: Mark Shapiro
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