You can declare bankruptcy after a judgment has been awarded against you. Bankruptcy is designed to provide protection against judgments and other forms of debt. Relief from debt collectors attempting to collect on judgments is available immediately after your bankruptcy filing, and a bankruptcy attorney can file the paperwork in as little as one day.
Bankruptcy
Bankruptcy is the most negative credit information that can be added to your credit report and should be avoided if at all possible. Bankruptcy information will remain on your report for at least 10 years, and it could take two or three years of credit repair before you can qualify for a home mortgage or get other credit at a reasonable interest rate. A nonprofit credit counselor approved by the Department of Justice's U.S. Trustee Program can advise you about options for handling judgments without resorting to bankruptcy. Judgments can often be resolved by simply establishing a payment plan.
Judgments
A judgment is a legal decision reached by a judge. The judge reviews a lawsuit, or complaint, from an attorney representing a creditor or debt collection company. The complaint alleges that you opened an account, received money or credit and then at some point stopped paying. The lawyer argues that you should be ordered by the court to pay the remaining balance. Illinois Legal Aid reports that the lawyers almost always win in court if they can produce documentation showing that you are legally responsible for the debt and that you did indeed stop paying.
Negotiations
"The New York Times" reported in 2010 that lawyers don't always have the documentation they need to win in court and that lawyers often seek to settle credit lawsuits just hours before a scheduled appearance before a judge. At that late stage the settlement offers generally favor the creditor or debt collector, but can avoid a judgment and the need to consider bankruptcy.
Garnishment
A judgment will cause your credit score to drop, but it's likely that your credit is already bad if creditors are starting to file lawsuits against you. A more serious problem posed by judgments is bank and wage garnishment. After winning a judgment the creditor or debt collector can ask the judge for permission to take money from your bank accounts or garnish your wages. With wage garnishment, a portion of your pay will be sent to the debt collector each time you are paid.
The Automatic Stay
Filing for bankruptcy prevents bank and wage garnishment with a ruling by a judge known as an "automatic stay." Legal website Nolo.com reports that the stay requires creditors and debt collectors to immediately end all collection efforts against you, including any bank or wage garnishments. The automatic stay remains in place while the court considers your bankruptcy petition and your finances are being reorganized. The automatic stay is very powerful and is a primary reason why some people choose bankruptcy when faced with garnishments or judgments.
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