subject: Fraud Judgments Won By Default [print this page] In general, fraud-based judgments are stronger than regular judgments when a debtor applies for bankruptcy (BK) protection. However, judgments for fraud aren't invincible, and default fraud judgments are still only default judgments. This article is my opinion and is not, legal advice. I am a judgment referral expert, and not a lawyer. If you ever need legal advice or a strategy to use, please contact an attorney.
Most judgments, and nearly every non-fraud judgments get discharged (voided) when a judgment debtor discharges their debts at a bankruptcy court. As soon as the judgment debtor applies for BK protection, they get their automatic stay. All judgment owners, even those with a judgment for fraud, needs to immediately stop all collection activities until they have written permission from the bankruptcy court that they may proceed.
If a debt or judgment is discharged, it is the end of the game and the creditor won't get paid for that debt or judgment. The bankruptcy court presumes almost all debts and judgments are dischargeable. However, there can be exceptions that can be claimed by a judgment creditor, which might result in the bankruptcy court ordering that a particular debt or judgment is non-dischargeable.
While most debts and judgments are discharged when a judgment debtor discharges them successfully at BK, there are some debts that can't easily get discharged, if they get demonstrated to the BK court. If it is proven that the judgment or debt was because of willful and malicious injury, fraud, embezzlement, larceny, or a divorce decree or a marriage settlement agreement, the bankruptcy court will usually determine and make an order that those kinds of debts are not dischargeable.
Theoretically, a judgment for fraud, especially one which highlights and proves most or all of the red flag badges of fraud (classifications of kinds of wrongdoing), is bankruptcy proof; however that bankruptcy immunity is not automatic or cheap. If a debtor applies for BK protection, the judgment owner must then bring the judgment for fraud to the attention of the bankruptcy court.
When a fraud judgment is a judgment by default, a BK court will usually demand a prove-up hearing and a motion for a new summary fraud judgment. Re-proving fraud and the cost of retaining an attorney is all the responsibility of the creditor.
For a bankruptcy judge to order that a money judgment is not dischargeable, a judgment owner must file a formal objection to their judgment debt being discharged. When a judgment owner proves that the basis for their judgment was part of the listed exceptions for misconduct, the bankruptcy court usually declares the judgment debt to be not dischargeable. When this occurs, the automatic stay is lifted and a judgment creditor may then employ every legal method to enforce their judgment, and all or most of the other judgment owners Plose, as their judgments and debts got discharged.
