August 17, 2017

Have You Been Sued?

What To Do If You Are Sued (How To Claim Your Exemptions)

Chapter 7 ◦ Chapter 13

Bankruptcy Alternatives ◦ Rebuilding Credit

Contrary to what most people believe, when you don’t pay a creditor, it DOES NOT simply go on your credit. The creditor will likely hire a lawyer of its own and file a law suit against you. When this happens, the creditor may obtain something called a judgment. There are two crucial things to remember about judgments: (1) bankruptcy should be able to prevent a judgment from being entered or undo a judgment that has been entered, and (2) a judgment has the potential to become the most devastating thing against you (including allowing the creditor to take belongings that are not exempt).

How is a judgment harmful if you do not file bankruptcy? First, a judgment is immediately alive for 10 years, but it is renewable at the request of the creditor for another 10 years. Commercial lenders like banks and credit card companies hire lawyers who know how to do this. Second, the judgment counts as active bad credit against you. Things don’t improve while it is on your credit.

Finally, and most alarmingly, for the person who does not file bankruptcy, a judgment may give the creditor the ability to take what you own it is not exempt (i.e., what is not protect-able). The Sheriff becomes the collector for the creditor and serves you with papers requiring you to claim your exemptions. These are not that elaborate and often do not protect everything that you own. Most alarmingly, if you do not fill the forms out correctly, or if you fail to file them and send them to the correct people, you may lose everything that you own.

How can bankruptcy stop this? If a judgment has not been entered, bankruptcy should prevent the creditor from obtaining a judgment. You avoid this entire problem.

If a judgment has been entered, bankruptcy should be able to undo or reverse the judgment. Therefore, it dies on your credit and can not be extended for the fully 20 years. It also begins to lose its sting on your credit score. Most importantly, you can use bankruptcy as a way to protect everything you own and prevent the sheriff and judgment creditor from executing on the judgment and taking property that is not exempt.

Finally, as is discussed in other parts of this site, while a bankruptcy filing can remain on your credit for up to ten (10) years (and judgments are there for up to twenty (20) years, a bankruptcy is a dead credit entry. If you are wise with what you do, your credit score should start to recover immediately after the case is over. Under this scenario, your credit score can recover fully before the ten (10) years is up.