Filing Bankruptcy after Being Sued before or after Receiving Judgment

Written by James Hirby | Fact checked by The Law Dictionary staff |  

Bankruptcy is well known for being the last resort in a person’s mind when that person’s financial state becomes a worsening, worsening cycle.  When a person finally decides to become a debtor and file for bankruptcy, that person certainly wants to have the best outcome that they can receive.

In the situation where a person meets the “means test” for filing bankruptcy, and for filing Chapter 7, many people who experienced this and several experts agree that it is better to wait until a court judgment occurs and takes effect.  This effective date is often two business weeks after the date of judgment issuance.  The effective date delay is to allow for any last chance motions to be filed against the judgment.  Once the judgment takes effect, then the person who wishes to do so should file for bankruptcy.  The judgment would be added to the list of liabilities that is filed with the chapter 7 request’s paperwork.  A judgment for payment of something like a hospital bill is considered to be an unsecured liability.  An unsecured liability is one that has no asset tied to the liability.  The reason that many recommend waiting for the judgment to become effective is to allow its inclusion in the initial filing.  If the judgment’s effective date occurs after the initial filing the debtor would have to request a motion to update the paperwork for the judgment, and if the motion is granted, then re-file the necessary paperwork and updates. Please note the interrogative “if” in the previous sentence.  There is no guarantee that that the trustee and or the judge will allow the update after the re-filing.  After a re-filing the added or updated creditor needs to be notified or reminded of the automatic stay, the trustee needs to redo the 341 hearing for this added liability, and so on.  Also realize that a re-filing costs additional money in fees and charges.  There are certainly times when a new creditor or an update to an existing creditor will be only be in second place on the priority list of a debtor.  More serious or pressing matters could certainly warrant filing and not waiting for the judgment.  As always such matters need to be discussed with the debtor’s bankruptcy lawyer to insure that the steps the debtor is taking are the best ones given the situation that the debtor is in.

Many people think that the inclusion of the judgment in the discharge is essentially a sure thing.  Many experts disagree because a court judgment usually allows for a payment plan to be calculated and generated over ten years.  If the trustee and or bankruptcy judge believe that the debtor can make the payments to that creditor over the longer length of time allowed, one or the other or both can exclude the court judgment from the discharge.  This is where the creditor’s presence at a 341 hearing can be to the advantage of the creditor.  This is where the creditor can make its case for being excluded from the discharge.  Even if included in the discharge, the creditor has about two weeks to file a motion against being included in the discharge and the bankruptcy judge will hear the petition.  Nothing is ever a sure thing.

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