If you’ve got a default judgment against you for an unpaid credit card debt, personal loan, medical bill, or similar debt then you may be thinking that filing for bankruptcy will solve the problem. New York consumers may want to seriously consider the full story first.
A default judgment is a common reason for New York residents to consider filing for bankruptcy. In New York a judgment creditor has the right to freeze your bank account, take part of your wages, and continue to add interest on the amount due at a statutory rate until the debt is paid in full.
If you’re living paycheck-to-paycheck as is, the prospect of having to surrender a portion of your income isn’t appealing. And given the high cost of living in New York, every dollar counts.
It’s true that filing for bankruptcy will stop the income execution (wage garnishee), lift the hold on your bank accounts, and give you some breathing room. But even the bankruptcy discharge won’t eliminate the impact of that default judgment against you.
A judgment is a matter of public record, and creates a statutory lien on any real estate you own as of the date on which the judgment is filed. Your bankruptcy may eliminate your personal liability for payment, but if you own any real estate then that judgment will still need to be paid in full (plus interest) when you sell the property.
The only way around that lien is to file a motion with the court during your bankruptcy case. Whether the facts and circumstances of your situation warrant such an action (or whether the motion would be approved) is up to you and your lawyer.
Even for those who don’t own any real estate at the time the default judgment is entered, filing for bankruptcy will not wipe out the civil court judgment itself. The judgment will remain as a hollow shell, on file with the civil court (and on your credit report) until some action is taken.
Under New York law (not bankruptcy law) you can file a motion with the civil court to mark the default judgment as discharged, but only after a year has passed since your bankruptcy has been discharged. Your bankruptcy lawyer may be able to handle this for you, but most lawyers don’t consider that as part of the process of filing for bankruptcy in New York. Therefore, you want to make sure to discuss this with your attorney. If necessary, you’ll want to meet with another lawyer who will handle this for you.
Image credit: Paul Jacobson (Flickr)
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