Many people ignore demands of payment from collection agencies and other creditors, not realizing that these companies can file a lawsuit to get a judgment against them.
Once the creditor gets a judgment, it can record such judgment and put a lien on your property or institute garnishment on your bank accounts or wages. Once a lien is recorded on your property, the debt becomes a secured debt and exempt from a bankruptcy discharge.
While you will not be personally liable from the debt, you will not be able to sell the property until the debt is paid and the lien is removed. If thereâ€™s enough equity in your property, the sale may be allowed to proceed, but part or all of the equity will be paid to the lien holder. The creditor who holds the lien can even auction your property to satisfy the lien.
If the property is exempt (i.e. your homesteaded house or mobile home) that lien can be removed.Â While your bankruptcy is open, you must request your attorney to file aÂ Complaint to Avoid a Judgment Lien, for which your attorney may require an extra charge since this is not part of the traditional bankruptcy procedure.
If the judgment is not recorded, or you have no property on which the creditor can put a lien, and the underlying debt is dischargeable (meaning unsecured, such as credit card debts), a bankruptcy can still discharge these debts despite a judgment. However, if the judgment is on a debt that is non-dischargeable Â (i.e. child support, spousal maintenance, fraud, personal injury resulting from DUI, student loans, etc.), the debt will not be discharged in bankruptcy.
After the bankruptcy discharge, any property you acquire will already be out of reach of the judgment. Similarly, wages earned after the discharge are no longer within the purview of the judgment. In fact, wages garnished prior to bankruptcy may be recovered from the sheriff or the creditor if those wages would have been otherwise exempt.
In conclusion, it is not a good idea to wait too long to act once a collections proceeding has been initiated against you. A bankruptcy can free you from many kinds of debts, including those already in collection. However, your decision to file for bankruptcy must be based not on a single debt, but on your overall financial picture. An experienced bankruptcy lawyer can help you make that determination.
Call us today and schedule a free consultation.Â Glendale (818) 334-5445 and Cerritos (562) 356-9931.Â Evening and Saturday appointments available.
Atty. Paul M. Allen is a member of the highly respected National Association of Consumer Bankruptcy Attorneys and an active member of the State Bar of California. His offices are located at 520 E. Wilson Ave., Suite 110, Glendale, CA 91206, and 17215 Studebaker Rd., Suite 380, Cerritos, CA 90703, with telephone numbers (818) 552-4500 and (562) 865-4480.
(This article is for information purposes only, and does not necessary reflect the companyâ€™s opinions and views on general issues. We make no warranty, prediction nor representation, nor do we assume any legal liability for the completeness of any information and its effect on any case. Each case is different and results depend on the facts of each case. Consult with and retain counsel of your own choice if you need legal advice.)