In general, filing for bankruptcy relief will discharge most of your debts including lawsuit judgments. But there are exceptions. Whether your bankruptcy will discharge a lawsuit judgment depends on:
- the type of injury or debt the judgment is for, and
- whether the judgment creditor has already placed a lien on your property.
Bankruptcy Will Discharge Most Lawsuit Judgments
The majority of lawsuit judgments against bankruptcy debtors involve unpaid debts. If you don’t pay your credit cards, medical bills, or other personal loans, the lender or creditor can bring a breach of contract lawsuit against you. If your lender obtains a judgment, it can garnish your wages or go after your personal assets to satisfy the outstanding judgment.
Fortunately, filing for bankruptcy can stop the garnishment and wipe out your obligation to pay back discharged debts. If a lawsuit is still pending, the bankruptcy’s automatic stay will stop it from moving forward. However, even if the lawsuit has already resulted in a judgment against you, your discharge will still eliminate your liability in most cases. But keep in mind that if the judgment is for a nondischargeable debt, bankruptcy will not get rid of it (discussed below).
Exceptions to Discharge
Certain types of debt can’t be discharged in bankruptcy. If a creditor obtains a judgment against you for a nondischargeable obligation, filing for bankruptcy will not discharge that judgment. Some of the most common types of nondischargeable judgments include those related to or arising out of:
- domestic support obligations such as child support and alimony
- criminal penalties, fines, and restitution
- certain taxes
- student loans
- debts acquired by fraud, misrepresentation, or false pretenses
- willful and malicious injury caused by debtor, and
- death or injury caused by debtor’s drunk driving.
Bankruptcy Will Not Automatically Remove Liens from Your Property
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, simply filing for bankruptcy does not automatically remove any liens that were placed on your property prior to filing your case.
If a creditor obtains a lawsuit judgment against you, it can enforce that judgment in different ways including garnishing your wages, levying your bank accounts, or placing liens against your properties such as your house. If a judgment lien has been placed on your property, you must file a motion with the court in order to remove it.
However, not all judgment 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 your state's exemption laws. Because the rules and procedures regarding lien removal can be complex, if you have liens on your property, consider talking to a knowledgeable bankruptcy attorney in your area prior to filing your case.