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Understanding Bankruptcy vs. Bad Debt Judgments

Bankruptcy will stop many outstanding judgments that you have against you cold.

When you have a judgment against you because of bad debt, the consequences can seem staggering. In some jurisdictions, a judgment can linger over you for 10 or even 20 years. Further, judgments open up the way for even more serious action on the part of your creditors, including wage garnishment and the seizure of your property and bank accounts. If you have judgments against you that seem insurmountable, you may want to consider bankruptcy as a means of getting out from underneath bad debt judgments.

What Is a Judgment?

Put simply, a judgment is simply recognition by a civil court that you owe a certain amount of money. Judgment does not automatically lead to garnishment or seizure of property, but it is a step in that direction. Once a judgment has been issued the court system has officially declared that you owe the money in question. Your creditors can use this to take further action against you, including measures such as wage garnishment.

One of the major down sides to a judgment, at least as far as a debtor is concerned, is the length of time that judgments hang around. While a creditor can only sue you for a few years after you default and the defaulted account will stay on your credit report for only seven years, a judgment can last an entire generation. Once issued, there is very little that you can do to get a judgment removed.

What Is Bankruptcy?

Bankruptcy is a means of going before a court and declaring that you are incapable of paying your past debts. A bankruptcy trustee will handle your case. It is this person’s job to represent you, financially speaking, in court. The trustee will manage all of your assets while your case is pending. When bankruptcy is completed most of the debt that you held before the day you filed for bankruptcy will be forgiven or “discharged” to use legal terminology. This means that you are no longer legally liable for these debts.

While it possible that you will have assets seized when you declare bankruptcy, this is rare. Chances are, the things that you own are not valuable enough to warrant their seizure by the bankruptcy estate. While your house may be worth a great deal, your primary residence is generally protected from seizure. Unless you have a number of valuable assets or a particularly outstanding car, chances are that you will not lose any of your personal belongings when you file for bankruptcy.

The protections offered by bankruptcy proceedings are sweeping. Not only can your creditors not collect the discharged debt, they are legally barred from even attempting to collect the debt. In fact, if your creditors do attempt to collect discharged debt, you can sue them for damages in civil court under the Fair Debt Collection Practices Act.

Bankruptcies stay on your credit report for 10 years. However, once the case is done most of your debts are erased. Garnishments end the day that you file. This can make bankruptcy a particularly attractive option to the person who is having difficulties making ends meet due to garnishments.

Bankruptcies Beat Judgments

There are very few forms of debt that bankruptcy does not wipe out. Some of the major types of bankruptcy-resistant debt include student loans, back taxes and child support or alimony payments. If you are having trouble paying bills because of court judgments regarding your debt, it might be time to start seriously considering bankruptcy as an alternative.

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