If you got sued and lost, usually the next question is, "Should you file bankruptcy?" If you're one of those folks, take heart. The sky has not fallen, even if you lost that suit. Most judgments ARE dischargeable in bankruptcy. Some aren't. And in a few rare instances, the question of whether the judgment can be discharged may be the subject of a lawsuit IN the bankruptcy court.
Simple breach of contract lawsuits are the most common and commonly result in wage garnishments. Tom fails to pay his credit card and Bank sues him. Tom has no idea what to do about the Summons and Complaint. Bank waits thirty days for Tom's response, gets none, shouts "Groovy" and requests a "default" judgment (i.e unopposed.) Judgment is granted, stamped by the court clerk, and now Bank can try to collect the money. For example, levying Tom's bank account. Or garnishing his wages, if he has a job. Or doing a "till tap" if Tom runs a business. (That's where the lender pays to have a sheriff's deputy intercept incoming money and keep it for the lender.
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Now that the judgment is entered, is it too late for Tom to get help from bankruptcy? No. Bankruptcy neutralizes the judgment, just as effectively as if the bankruptcy had been filed prior to Bank's lawsuit being filed in the first place. Tom's attorney must take special care to get the right paperwork to the right people at the court where the lawsuit was filed, but is he does, the judgment essentially disappears. It's no longer even reported on the credit report.
Let's pretend for a minute that our friend Tom is somewhat less than the honorable. He's been convicted of fraud (a crime) and is ordered to pay restitution? Bankruptcy won't help. If he dodged a bullet in the criminal case but the victim sues him successfully and the jury (or judge) finds fraud? Same problem. And his ex doesn't have to worry about her judgment for support arrears being disturbed, because that's not dischargeable. If the Dept. of Education catches up with Tom after a lifetime of having eluded his student loans, they can actually garnish his Social Security benefits to the tune of 15%.
Make sure you tell your attorney about any lawsuits and judgments you know about. The best time to catch them is BEFORE your bankruptcy is filed.
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