Does Filing Bankruptcy Avoid a Judgment?

Filing for bankruptcy stops creditors and debt collectors from collecting on judgments against you. That allows you to avoid the judgment by having it addressed through the bankruptcy. Once you file for bankruptcy you gain protection from the federal bankruptcy courts and debt collectors will be prohibited from forcing you to make payments. The judgments become powerless, a clear reason why bankruptcy is the most effective debt management tool available. Bankruptcy has many disadvantages, but its protection against court judgments and bill collectors is unmatched.

The Automatic Stay

When you file for bankruptcy a federal judge will issue a court order called an "automatic stay." The automatic stay works like a cease and desist order. Your individual creditors, including those holding judgments, are formally notified by the court that you have filed for bankruptcy and that all attempts to collect debts from you must immediately stop.

Long-Term Protection

After the automatic stay begins the debt collectors are prohibited from collecting while you remain under the court's protection during the bankruptcy. The goal of the bankruptcy is to give you time to reorganize your debts in an orderly fashion. That may not take a long, depending on which form of bankruptcy you choose.

Bankruptcy Types

Chapter 7 bankruptcy is considered the simplest form of bankruptcy and can completely eliminate judgments resulting from unsecured debt, such as credit cards. Unsecured debts can be eliminated in just months under Chapter 7. Chapter 13, another popular form of bankruptcy, requires a payment plan of three to five years, with all unsecured debts eliminated after that.

Loopholes

You must complete the bankruptcy or the collection efforts will resume. Bankruptcy petitions can be dismissed because of procedural mistakes by your attorney or if you violate the terms of your bankruptcy by failing to report income or taking on new debt without the court's permission. If the bankruptcy is dismissed, the automatic stay is revoked and debt collectors will be free to resume all collection activity -- including asking the courts to allow garnishment of your bank account and wages.

Choose Carefully

Bankruptcy isn't the only method for resolving judgments. You can also settle judgments by contacting the debt collector and offering to pay less than the full amount owed. If you have just one or two judgments this may be preferable to filing for bankruptcy, which ruins your credit. Nonprofit credit counselors, such as those affiliated with Consumer Credit Counseling Service, can also recommend other solutions such as debt management plans. The plans allow the counseling agency to take over the management of most of your bills, with the agency contacting debt collectors directly to work out payment plans for judgments and other debts.