If you have been served with a lawsuit or your creditor has already obtained a judgment, bankruptcy may be your best option to help you get out of debt and get a fresh start. You can file bankruptcy on judgments and in most cases a bankruptcy filing will eliminate the judgment and underlying debt. You can even file your case before of after entry of a judgment, and you can still eliminate the underlying debt and prevent any further liability to your creditor.
It is actually preferable to file bankruptcy before the entry of a judgment rather than after the judgment has been entered against you. Once your creditor obtains a judgment against you they can levy on your bank accounts and garnish your wages, and you may not be able to file your bankruptcy case, either under Chapter 7 or Chapter 13, in time to stop a garnishment of your wages or the levy on your bank account. Filing prior to judgment will stop a lawsuit and avoid a judgment from happening.
Also, once you are sued, you will have to hire a lawyer to defend you otherwise you will lose automatically, by what is called a “default” and default judgment. Default judgment means that if you fail to timely appear in Court and defend a lawsuit. When you lose by default, a judgment can be immediately entered against you.
Once your creditor obtains a judgment against you, your creditor can attach your wages through Wage Garnishment, attach your bank account through a Bank Levy, place a lien against your home or rental property, and even ask the Sheriff to seize your car and sell it to pay off the judgment, among other collection remedies.
California judgment collection law is very judgment creditor friendly. This means that in California State Court collection proceedings your creditor has the upper hand. Bankruptcy Court, by contrast, is much more judgment debtor friendly. You will have more rights and protections under the shield of the debtor-friendly Court.
If your creditor has already begun enforcing its judgment through a wage garnishment, filing a Chapter 7 or Chapter 13 case will still eliminate the debt, wipe out the judgment, and stop the wage garnishment from proceeding any further. Once you file your case, an automatic bankruptcy stay immediately stops the wage garnishment and your earnings are restored and you will receive your full paycheck again.
If your creditor has levied upon your bank account and frozen your bank account funds through a bank levy, filing a Chapter 7 or Chapter 13 case will stop any future bank levy from occurring. Upon the filing of your case, the bankruptcy stay goes into effect and no future levies can occur, unless the creditor holds a nondischargeable debt that cannot be eliminated in bankruptcy.
Any funds seized by a bank levy, if they are still in the hands of the Sheriff, will be turned over to the Trustee. If the levied funds are within your allowable exemptions (assets you get to keep when you file bankruptcy) then the funds will ultimately be returned to you. If the levied funds are not within your allowable exemptions, then they will be distributed to your creditors.
Assuming that you did not commit was no fraud or other similar misconduct, then in most cases when you file bankruptcy, judgment debt owing before bankruptcy is eliminated by your discharge and the Discharge Injunction prohibits your judgment creditor from attempting to collect the judgment debt.
If there was fraud or similar misconduct involved, then your creditor has a set period of time in which it can file an Adversary Complaint (a lawsuit in Bankruptcy Court) objecting to the discharge of the Judgment.
If you filed bankruptcy before entry of judgment, again assuming there was no fraud or other similar misconduct, then the debt owed to your creditor who sued you will be eliminated and your creditor can no longer attempt to sue you and obtain a judgment.
An experienced bankruptcy attorney can advise you as to whether or not a Judgment obtained against you by your creditor will be discharged (eliminated).