As a homeowner filing a NJ bankruptcy, what do I do if a creditor enters a judgment against me?

A:

Homeowners filing bankruptcy in New Jersey have to take a couple extra steps in their case if a creditor enters a judgment against them as a result of a lawsuit.  The debt itself can still be discharged (wiped out), but the judgment creates a lien against any real estate you own, like your home.

You Could Remove the Lien

People in bankruptcy are allowed to keep assets that do not have a net value over and above a fixed amount called an "exemption."  Therefore, if the judgment lien is "sitting" on that equity, it "impairs" your ability to enjoy the benefit of that exemption. This means that if you do not have any more equity in your house than you can legitimately exempt, you can "avoid" the judgment lien.

The problem comes in if you have more equity in your home than you can exempt, the judgment lien may stay in place. You should bear in mind, though, that the "avoiding" of that lien requires an extra step in your bankruptcy for which many attorneys charge an extra fee. Thus waiting until a judgment is entered could end up costing you more money to file bankruptcy.

You Could Claim That the Lien is a "Preference."

Another angle of attack on the judgment lien is if you file bankruptcy within ninety (90) days of the date the judgment was entered. One reason people file bankruptcy is to prevent any one creditor from gaining an advantage (such as filing the first wage execution, bank levy or, in this case, judgment lien).

A fundamental principal of bankruptcy law is to treat creditors of the same class equally, and by obtaining a judgment lien ahead of other unsecured creditors, the judgment creditor has obtained an advantage. This amounts to a "preference" under the bankruptcy code, and can be the basis of an objection. But again, that is an additional step that you will need to take, which could end up costing you extra.

If your debt is beyond your ability to handle, and your creditors are starting to sue you, contact my office for a free consultation.  The best defense here is a good offense, and filing your bankruptcy prior to judgment can make your case simpler and cheaper.

Have more questions about bankruptcy?  Get the answers to the most frequently asked questions by downloading my free book, Top Questions People Ask About Filing Bankruptcy in New Jersey.  It will give you the answers you need all in one place.  Then call me at 888-857-8418 or contact me through this site for an appointment for a free consultation to discuss your case.