People who file for bankruptcy are often perplexed about debts that are associated with a judgment. Can a debt on which there is a judgment or lien receive a bankruptcy discharge?
The first step in answering the question is pinpointing the type of debt is in question. Determining which debts are dischargeable depends on the kind of debt and how the debt was incurred. Any debt incurred through fraud is not eligible for discharge. Certain tax debts, child/spousal support obligations, and student loans do not qualify for discharge through bankruptcy.
The next step is to identify what you’re dealing with – a judgment and a lien are not the same thing. A lien is a legal right to receive payment from a specified property or asset (instead of the legal right to receive payment from an individual). A judgment is simply a court order that allows a creditor to pursue collection actions (this can include creating a lien against specified assets). Other collection actions a judgment can allow a creditor to pursue in addition to a lien against property or assets include wage garnishment, bank account seizures, etc.
As far as obtaining a discharge of debt through bankruptcy, a debt on a judgment is no different from other debts without judgments. They are equally dischargeable in bankruptcy unless they fall into one of the categories of debt already discussed that are not eligible for discharge (as outlined in 11 U.S.C. 523).
Bankruptcy treats judgments the same as other debts, but liens against property will remain in place unless they are removed. The bankruptcy discharge eliminates personal liability on a debt; it has no effect on a property’s liability on a debt. If a creditor obtains a judgment lien, it will remain in place against whatever property it is “attached” to on the date of the bankruptcy filing after the bankruptcy discharge is entered unless it is explicitly removed or avoided in the bankruptcy case. If specific requirements are met, a bankruptcy petitioner can get rid of a judgment lien based on bankruptcy code section 11 U.S.C. 522(f) allowing a lien to be removed to the extent that it impairs an exemption to which the debtor would be entitled in the absence of the lien.
If you need to discuss obtaining a discharge of debt through bankruptcy or if you need to talk about whether or not bankruptcy can get rid of your judgment lien, please get in touch with one of the experienced bankruptcy attorneys at Aronow Law PC today.