I received the following question about judgments from a potential client:
Are judgments considered secured debt? Or, are they only considered secured to the point of being a lien above and beyond any exemptions? Isn’t a judgment simply a finding by the court that you owe a debt? I am particularly interested in how judgments are dealt with in a chapter 13. I’m trying to avoid filing a 13 while I wait to see what happens with my income (up or down), and I could feasibly live through a few months of wage garnishments if necessary. However, if judgments themselves create a problem, maybe I should just file?
My response: A judgment refers to a decision by a court that has been entered into the public record. Before a judgment can be issued, a lawsuit must be filed against you. If you do not file an answer to the lawsuit within the time period required by law (usually 20 to 30 days after service of the lawsuit on you), the plaintiff can ask the judge to issue a “default judgment.”
You can also negotiate a “consent judgment” with the plaintiff – in a collection case, a consent judgment usually includes payment terms. You can also file an Answer to the lawsuit and go to trial. The decision by the judge or jury – whether favorable or unfavorable – will be set out in a judgment.
If a judgment has been issued against you in a collection case, your creditor becomes a secured creditor instead of an unsecured creditor. Secured creditors have more rights than unsecured creditors. In most States, a judgment creditor can satisfy its judgment by garnishment against your bank account or your wages, although in some States (such as California), the judgment creditor must take additional steps to have the right to take your property away from you. A judgment creditor can also place a lien against any real estate that you own in the public record. This lien will encumber your property and will need to be paid before you can sell your real property.
Every State has its own rules about how much a judgment creditor can seize from you at any one time and about the judgment creditor’s rights against real and personal property. In Georgia, where I practice, the process by which a judgment creditor can move against a judgment debtor is relatively fast and not particularly burdensome. In other States, the judgment creditor must expend time and money to secure its judgment. California bankruptcy lawyer Cathy Moran writes that judgment creditors must file additional court paperwork before it can excercise their rights against California judgment debtors.
In a Chapter 13 bankruptcy, a judgment creditor has the right to file a secured claim. Typically, secured claims are paid in full in a Chapter 13 and they are paid before unsecured creditors.
In some jurisdictions, debtors routinely file a motion in bankruptcy court to avoid the lien. This procedure varies depending on where you live.
A judgment will also appear on your credit report and can negatively affect your credit score.
I think it is dangerous to have one or more outstanding judgments pending against you. While bankruptcy is not always the best option, I think it would be wise to at least discuss your bankruptcy options and the potential dangers inherent in judgment collection with a qualified bankruptcy lawyer.
by Jonathan Ginsberg, Atlanta bankruptcy attorney