A civil judgment is a ruling against you for money damages in a court of law. With regard to finances, unsecured debts such as credit cards, personal loans, a deficiency balance left over from a vehicle repossession and medical bills are among the most common debts subject to a civil judgment lawsuit. A Chapter 7 liquidation or Chapter 13 repayment plan bankruptcy will discharge most civil lawsuit judgments if you list the judgment in your petition and complete the action successfully.
How It Works
A judgment creditor has options for collecting the debt that other creditors don't have. These include wage garnishment orders and even seizing your property. However, once you file for either Chapter 7 or Chapter 13 bankruptcy, creditors named in the petition must stop all collection efforts. Once a judge signs the discharge order, the process is complete and you no longer have any legal responsibility to any discharged debt, including a covered civil judgment.
With a Chapter 7 action, discharge occurs within about six months and the order erases the entire outstanding balance of the judgment. With Chapter 13 reorganization, the order erases whatever balance remains at the end of your repayment plan.
Although a civil judgment can be discharged in a bankruptcy, MyFICO reports that the notation remains in your credit profile for seven years from the filing date.
Exceptions to the Discharge Rule
Issues during the meeting of creditors, bankruptcy fraud, providing wrong information and failing to follow through on a Chapter 13 repayment plan can create exceptions to the discharge rule and may result in a judgment remaining in place even after the bankruptcy. For example, if you enter incorrect information such as the wrong case number, contact information or names of other parties in the case, a creditor can fight the order and claim an exemption.
In addition, some civil judgments don't involve dischargeable debts. These include student loans; federal, state or local government fines; and personal injury award debts.
In addition to eliminating financial responsibility for a money judgment, Chapter 7 bankruptcy can also eliminate outstanding judgment liens against your home or your car. Avoiding a judgment lien requires that you meet certain conditions and claim the property as exempt. This can be confusing and might require assistance or advice from a bankruptcy attorney.