Default Judgements in Chapter 7

Many people who get sued by a creditor do not respond to the lawsuit. Statistics show that more than 90% of debtor sued by creditors fail to file a response with the court. As a result, a default judgement is entered against them. 

Having a default judgement against your name is not pleasant. Debt collectors can now garnish your wages, freeze bank accounts and place liens on your property. Thankfully, Chapter 7 bankruptcy may help remove this judgement and discharge the debts subject to the order. Speak with a bankruptcy attorney to explore your options. 

Bankruptcy Attorney in Dallas County

A default judgement will only make the bankruptcy process more complicated. Removing the judgement will not be easy, but Littlefield Law Firm knows how to get it done. Linda Littlefield will file motions and do whatever else is necessary to have the judgement removed so you can achieve the financial peace you deserve. 

Take advantage of our free consultation. Call (972) 812-0900 to speak with a bankruptcy lawyer at Littlefield Law Firm. We are based in Dallas County, but regularly assist clients in Collin County, Rockwall County and Kaufman County.

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What is the Automatic Stay?

Having wages withheld from your paycheck or not being able to withdraw money from your bank account will only place more strain on your finances. By filing for Chapter 7 bankruptcy, you can take advantage of the automatic stay.

The automatic stay is an injunction that stops all collection efforts from creditors, including collection efforts from a default judgement. According to the federal bankruptcy statutes, this protection will go into effect immediately after you file for bankruptcy. Protection from the automatic stay is very broad and applies to every pre-bankruptcy debt. The injunction will not protect you if the judgment is the result of a debt incurred after you filed for bankruptcy.

Not all debts are protected by the automatic stay. Debt collectors can continue to enforce a judgment for debts like overdue child support or alimony, loans from a pension and restitution from criminal proceedings. 

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Are Default Judgements Eligible for Discharge? 

Determining whether debts attached to a default judgement are eligible for Chapter 7 discharge is a tricky area of the law. If the debt subject to the order is discharged, the judgement may be wiped out, and you will no longer be responsible for it.

A good starting point in determining whether bankruptcy proceedings will discharge a judgement is figuring out if the underlying debt is non-dischargeable. As the name implies, a non-dischargeable debt will not be discharged by bankruptcy proceedings. Debts not eligible for Chapter 7 discharge include:

  • Debts to the government such as taxes, court costs, criminal fines and restitution
  • Student loans
  • Personal injury or wrongful death awards stemming from driving while intoxicated
  • Child support and alimony

 Most unsecured debts can be wiped out by Chapter 7 proceedings. Unsecured debt is any debt that is not secured by collateral or a lien. You will have to take additional steps to have the lien removed and the qualifying debt discharged, which we will discuss later.

Debts that are eligible for Chapter 7 discharge include:

  • Medical bills
  • Credit card balances
  • Personal loans
  • Promissory notes
  • Lease and contract obligations
  • Most debts from a car accident 

Just because your debt qualifies does not necessarily mean it will be discharged. Creditors and the bankruptcy trustee can ask the judge to label certain debts as non-dischargeable. Debts that may be labeled as such include:

  • Debts incurred from fraud
  • Debts incurred from malicious behavior
  • Debts from breach of trust, larceny or embezzlement
  • Purchases of $750 or more of luxury goods or services on credit within 70 days of filing
  • Purchases of $1,000 or more of cash loans or advances taken within 90 days of filing
  • Debts from a divorce, unless
    • The benefit of the discharge outweighs debts to the ex-spouse; or
    • The debtor could still not afford the debt after bankruptcy 

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Will Chapter 7 Bankruptcy Remove Liens?

Bankruptcy discharge will relieve you of obligations for certain debts. You will no longer be legally required to pay the debts that have been discharged. However, filing for bankruptcy will not automatically remove any liens placed on your property before filing.

Given you did not consent to the judgement, your attorney can file a motion to avoid the judgment lien. This motion will remove the lien from your car, home or property that could have otherwise been exempt in Chapter 7 bankruptcy. Three conditions must be proven to qualify for lien avoidance:

  • The lien was the result of money judgement issued in your name and you did not consent to the lien
  • You have property with equity that you can claim as exempt
  • The judgement lien consumes most or all your equity that could have been exempt 

The creditor will likely argue the lien is valid up to the exemption amount if the property has more equity than what can be exempt.  Complexities of removing judgement liens go beyond the scope of this article. It’s advised you seek legal counsel to assess your case.

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Additional Resource 

Chapter 7 | Bankruptcy Code – Read the section of the Bankruptcy Code governing Chapter 7 bankruptcy. By following the link, you can gain access to additional information about discharge and learn more about the treatment of liens. The information can be found on the Legal Information Institute, an online legal resource provided by Cornell Law School. 

How to Set Aside a Default Judgment – Follow the link provided to learn how to remove default judgments. You can learn about situations that warrant the motion, see if you qualify and find out how to ask the court to cancel the judgement.

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Bankruptcy Lawyer in Dallas 

Has a default judgment been entered against you? Is a creditor threating to sue you in court? Chapter 7 bankruptcy may be the best option to prevent a default judgment from damaging your finances. Linda Littlefield has been assisting clients with bankruptcy and related issues for nearly 25 years. She will evaluate your financial situation and help you decide if Chapter 7 is right for you. 

Call (972) 812-0900 to schedule a time to speak with Ms. Littlefield. Littlefield Law Firm assist consumers and small businesses in areas such as Dallas, Plano, Heath and Rockwall.

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