A Brief Overview of Bankruptcy for Judgment Creditors
A bankruptcy filing by your judgment debtor could wipe out your judgment. There are several different kinds of bankruptcy filings and they are commonly referred to by the chapter within which they can be found in the bankruptcy code. A debtor who files for bankruptcy is called the “Petitioner.”
A Chapter 7 bankruptcy results in the liquidation of the petitioner’s entire estate and the discharge of their debts. “Discharge” means to zero out or eliminate the debts, which can include anything they owe on a judgment. There is a “Means Test” for a debtor who wants a Chapter 7 liquidation of his debts. Fortunately for creditors most debtors don’t qualify for a Chapter 7. Most Chapter 7 debtors don’t have a job or any significant assets. A creditor might find it extremely difficult to collect anything from such a debtor even without the bankruptcy laws.
Many more debtors qualify for a Chapter 13 bankruptcy. The Chapter 13 is sometimes called a “debt adjustment” bankruptcy, or a “consumer bankruptcy.” Rather than wipe out debts, Chapter 13 requires the debtor to embark on a plan to repay his debts over time, at a rate that can be supported by the petitioner’s income. The Petitioner gets protection from his creditors and adjustment of his payments.
A Chapter 11 bankruptcy is sometimes called a “reorganization.” If a business hopes to continue operating, it can file a Chapter 11 petition to seek protection from it’s creditors and possible modification of any contracts to which the business is a party.
If you ever receive notice that your judgment debtor has filed a bankruptcy petition, you may be able to protect your judgment by filing a claim with the bankruptcy court. You can go to the United States Bankruptcy Court for your district and file the claim on-line. Your claim should be for the unpaid balance of your judgment.
If you receive a notice of the debtors’ bankruptcy directly from the court, this means your debtor has listed you as a creditor. Under the bankruptcy laws debtors are supposed to identify and list all of their creditors. The law says the debt can’t be discharged or adjusted unless it is listed. This provides a powerful incentive for debtors to list their debts.
However, debtor’s sometimes fail to list a debt. If you learn that your debtor has filed bankruptcy, but you have never received any communications directly from the court, you should undertake to confirm that the debtor has actually filed a bankruptcy petition and then make a claim; even if the debtor has not listed you. It is possible to check bankruptcy filings on-line. Although the bankruptcy code says debtors must list all debts in order to have them discharged, the courts have held that a creditor with actual knowledge of a debtor’s bankruptcy can be barred from collecting the debt after the bankruptcy if the creditor failed to file a claim with the bankruptcy court. So, if you learn that your judgment debtor has filed bankruptcy, find the court and file a claim.
We represent judgment creditors in bankruptcy cases. If you would like to explore what might be possible with your judgment in your debtor’s bankruptcy, send an email to Norm Keyt explaining the situation.