If you don’t pay a particular debt for long enough, a creditor may commence legal proceedings to try and recover that debt. This often takes the form of a wage garnishment, however, if you are not working, then a judgement may be made against your assets. If you do not defend the lawsuit entered against you, the court will deliver a default judgement – you will receive this either by certified mail or by the court sheriff.  You have a number of options once you receive this judgement order and the outcome will depend on what assets you have.

One option is to file for bankruptcy. Under a Chapter 7 petition, the trustee will seize and sell any non-exempt assets. The proceeds are then used to repay any of your debts. After dispersing all available funds, the remaining unsecured debts are discharged. However, if you have few debts, and few assets, then filing for bankruptcy may actually be a costly and unnecessary approach to the problem.

When your receive your judgement order, you generally have up to 20 working days to respond (each state differs so check with your local laws). A creditor can only seize assets that are non-exempt under state laws, and many of these laws run in parallel to the bankruptcy laws. This means there are certain assets, which are automatically exempt, and allowances for other assets, including, in some states, a wildcard exemption. A bankruptcy lawyer can work with you to go through your assets and the allowable exemptions to determine what, if anything, remains for a creditor to seize. If you have no assets, then the process grinds to a halt and the judgement will eventually expire.

There are some words of caution that should be heeded before taking this approach. Some assets that are normally exempt in bankruptcy, such as secured assets, are not exempt through judgement orders. A car, while secured to a loan, can still be seized and sold so long as the secured lender receives full payment of the outstanding loan. The creditor who has the judgement may receive little from the sale, however, that may not stop them from taking this option. Why? Because they legally can and it often forces debtors to find alternatives to satisfy the debt. This is where an attorney can help to protect your interests. In some cases, allowing a creditor judgement to run its course can be better than filing for bankruptcy.

Related posts:

  1. File For Bankruptcy Before A Creditor Gains A Judgement
  2. What If I Forget To List A Creditor When I File For Bankruptcy
  3. Bankruptcy Law – A Creditor Can Challenge A Stay
  4. Bankruptcy Law – Granting A Creditor Relief From A Stay