When a creditor obtains a legal judgment against a person to pay an outstanding debt, it is usually the nature of the debt that will determine whether bankruptcy can wipe out the judgment. Judgments in Bankruptcy are court orders that declare people liable to pay parties a specified amount.
Creditors who have judgments against people are allowed to garnish wages, take money from bank accounts, or obtain judgment liens against the property. Judgments are possible in a wide assortment of civil cases, including personal injury lawsuits and small claims cases.
Common Kinds of Judgments in Bankruptcy
Most judgments relating to bankruptcy cases involve unpaid debts, and creditors can bring suit to secure judgments against people when they default on their accounts. Judgments may be rendered against people in a number of ways, including:
- Confessions of judgments involve people acknowledging liability for debt, such as creditors requiring people to sign agreements as conditions of entering repayment plans
- Judgments by default for failure to respond to a creditor’s lawsuit
- Judgment by consent for people who accept responsibility for a debt
- Judgment after trial is when courts find people liable for debts
When a person files for bankruptcy, then all holders of judgments must cease their collection efforts. Pending lawsuits will also be suspended.
Dischargeability of Judgments in Bankruptcy
When it comes to a judgment, the type of debt involved will determine whether the judgment can be discharged through bankruptcy. A judgment is more likely to be discharged when it relates to credit card bills, personal loans, past due rent, other bills, and debts to family or friends.
Certain other judgments are not going to be as likely to be discharged. Judgments relating to child support, alimony, criminal fines, mortgages, and obligations incurred through negligence, fraud, or other criminal acts generally cannot be discharged,
Car loans and court costs or fees as well as debts secured by liens cannot be discharged in Chapter 7 cases. Judgment for tax debts cannot be discharged in Chapter 13. Other types of judgments that may not be discharged in a bankruptcy case could include damages for willful and malicious torts, driving under the influence (DUI) of drugs or alcohol awards, federal criminal orders of restitution, civil contempt of court orders, and fraud judgments.
Lien Avoidance
Judgments can possibly create liens on property, and liens will not go away in bankruptcy because although judgments may be discharged, people will remain obligated to pay liens. When creditors do not require people to put up collateral as a condition of a loan, they cannot do much more than ask people to pay their bills.
Creditors can sue people in court, however, to seek judgments, and some creditors may seek to attach liens to people’s property. A lien will give the creditor a right to the property until the person pays their debt, and the creditor will have the right to sell the property to pay off the balance or make the person sell the asset.
In Chapter 7 bankruptcy, a person’s motor vehicle could be exempt from liquidation or forfeiture when it is worth less than the Arizona exemption limit. A judgment lien against an exempted vehicle a person owns free and clear may be discharged through bankruptcy.
If a person is still paying off an auto loan, bankruptcy could eliminate their obligation to make delinquent payments but the lender’s right to repossess the vehicle will still stand and a person could still lose their vehicle.
When it comes to Chapter 13 bankruptcy, people can avoid judgment liens against real estate by exempting the real estate from consideration. This could also eliminate any protection a person might have against repaying outstanding debt owed on any mortgage on that property, so they will want to be sure they discuss their options with an attorney.
Deficiency Judgments
Many people who are dealing with foreclosure in Arizona will find that their foreclosure sale has resulted in a deficiency, which occurs when the foreclosure sale price does not cover the balance of a borrower’s mortgage debt. Arizona state law typically prevents lenders from pursuing deficiency judgments against foreclosed homeowners, and the amount of a judgment could be limited in some cases.
Most foreclosures in Arizona are nonjudicial, meaning lenders do not have to go through courts to foreclose. Arizona Revised Statute § 33-814 provides that when trust property of 2.5 acres or less which is limited to and utilized for a single one-family or a single two-family dwelling sold pursuant to the trustee’s power of sale, no action can be maintained to recover a deficiency balance.
The same statute holds that when a deficiency judgment is allowed, an action to recover the deficiency must be brought within 90 days of the foreclosure sale. When no deficiency judgment is sought within 90 days, the sale price paid will be deemed complete satisfaction of the debt secured.
Under Arizona Revised Statute § 33-729, deficiency judgments are not allowed in judicial foreclosures when property is 2.5 acres or less, property is a single one-family or a single two-family dwelling, and a mortgage or deed of trust being foreclosed was given to secure payment of the purchase price. Deficiency judgments are also limited by the fair market values of homes.
All people with judgments against them will want to quickly consult an experienced Arizona bankruptcy attorney for help determining whether a judgment may be discharged. A lawyer will be able to advise you on the best way of addressing your debt and finding answers to dealing with it.
Contact Our Arizona Bankruptcy Law Firm
If you have been considering filing Chapter 7 or Chapter 13 bankruptcy in Arizona, but believe that judgments against you could complicate your case, it is going to be very important for you to be sure that you retain legal counsel for assistance in filing for bankruptcy. DebtBusters will take the time to sit down with you and discuss your entire case in great detail so we can understand your situation and recommend what actions you will need to take.
Our firm makes it easy for people to get legal representation in their bankruptcy cases and we also help you restore your good credit. You can call (866) 223-4395 or contact us online to schedule a free consultation with our Arizona bankruptcy law firm.
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