A Judgment Has Been Filed Against Me–Is It Too Late To File Bankruptcy?

by Adrian Lapas, Esq.

October 26, 2009

Absolutely not!  Many people have expressed concern that if a judgment is entered against them in state (or federal) court, then they are stuck with that particular debt.  In most instances, this is simply not the case.

To understand what occurs, it is helpful to know how a judgment works against you.  First, when a court enters a judgment against you particularly in the county in which you reside, a judgment lien takes effect against your real estate immediately.  The judgment lien is said to “attach” to your real property.  It is this judgment lien that means that you cannot sell your property or gives the judgment creditor the right to ask the sheriff to sell that real property to satisfy your debts.  Even if you do not own any property when the judgment is filed against you, it can still attach real estate that you obtain later.

But in bankruptcy, if the only real estate that you own is your home, you can generally exempt the equity in your home (equity is home value less any prior mortgages).  In North Carolina, you can exempt up to $18,500.00 in equity in real estate and this increases on December 1, 2009, to $35,000.00.

So, if the equity that you have in your property is less than $18,500.00 (or $35,000.00 after December 1), judgment liens can be avoided in bankruptcy.  Under Section 522(f) of the Bankruptcy Code, if a judgment lien impairs the property that you can otherwise exempt, then the lien can be avoided.

This means, the debt will still be dealt with through your chapter 13 plan or avoided altogether in a chapter 7 case and your obligation to pay that debt will be discharged.  Of course, there may be instances where a debt is non-dischargeable but the judgment must generally spell out those factors.

Remember, just because you have a judgment entered against you, it is still not too late to seek bankruptcy protection.

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Adrian Lapas, Esq.

I've been practicing bankruptcy law in North Carolina since 1993, and am certified as a specialist in consumer bankruptcy law by the North Carolina State Bar.

Last modified: October 27, 2009