A small claims judgment is when a creditor sues you in small claims court to force you to pay the debt. If the creditor wins, you are legally required to pay the debt or face garnishment of wages and bank accounts.
Small claims judgments are claims under a certain dollar amount. Each jurisdiction has its own standards regarding the ceiling on a small claim. Small claims could be for a variety of debts from medical bills to credit cards.
Chapter 7 Bankruptcy does release you from a small claims judgment. A Chapter 7 Bankruptcy shows that you do not have enough assets to pay your debts. In order to have the judgment discharged, be sure to list the judgment as one of your debts.
Be careful when considering filing a Chapter 13 Bankruptcy. In a Chapter 13, you reduce your debts to one payment a month made to a U.S. Bankruptcy Trustee. You can work with the courts and the creditors to pay all or a portion of your debt over a three to five year period. If you choose to file a Chapter 13, the small claims judgment may be included in your repayment plan.
Other items to consider before filing bankruptcy due to a judgment are the size of the judgment and the total amount of all your debt. It would be foolish to file bankruptcy on just one judgment if the dollar amount is relatively small and you have no other debt. It is foolish because bankruptcy and attorney fees can cost $1,000 to $2,000 dollars.
Based on this information, if the judgment is small, it would be best to just pay the judgment. You can attempt to work with the creditor to see if they will accept a payment plan rather than immediate payment in full.
However, if you have multiple judgments that add up to a substantial amount of money, bankruptcy may be a good option for you. If you have one small judgment and a high amount of other debt, bankruptcy may help you get out of debt.
Once you begin the paperwork for bankruptcy, all collection efforts against you must stop, even small claims judgments. If the U.S. Bankruptcy Court approves your bankruptcy, all of your debts are discharged. No creditor can attempt to collect from you on any debt included in the bankruptcy.