A judgment debtor filing for bankruptcy protection is about the worst judgment recovery roadblock a judgment owner can face. As soon as you find out that your judgment debtor has filed for bankruptcy protection, you must cease all judgment and debt collection activities. My articles are my opinions, and not legal advice. I am a Judgment Broker, and am not a lawyer. If you ever need any legal advice or a strategy to use, please contact a lawyer.
When a person or entity files for bankruptcy, their automatic bankruptcy protection stay starts. The automatic stay applies to any of the debtor's known (and sometimes even their unknown) debts, including all lawsuits or judgments that originated prior to their bankruptcy filing. The automatic stay prohibits all collection actions against the debtor or their assets. After a bankruptcy filing, it is a violation to even make a telephone call, asking your debtor about payment about any of their judgment-related or other debts.
The automatic bankruptcy stay is completely automatic. It starts at the date and time of the bankruptcy filing. The automatic stay does not depend on a written order from a judge, for the bankruptcy stay to take immediate effect. If anyone, including a judgment creditor, willfully violates a debtor's automatic stay, they can be found to be liable for damages, attorney's fees, and sometimes also punitive damages.
In community property states, the automatic stay also usually prohibits a judgment owner from pursuing the enforcement of their judgment against the community property assets of the judgment debtor's spouse. When a creditor suspects that their debtor has filed for bankruptcy protection; they should halt any judgment enforcement or debt collection activities, until they can verify that a bankruptcy filing has not taken place.
The automatic stay starts at the time of the debtor's bankruptcy filing, whether it is a chapter 7, 9, 11, 12, or a chapter 13 bankruptcy case. The stay remains in effect until the bankruptcy case is closed, denied, dismissed, or until the discharge of the debtor's debts is granted. If your judgment or debt gets discharged in the debtor's bankruptcy, it is game over, your judgment or debt is dead.
While there are some judgment debts that may ultimately survive their judgment debtor's filing for bankruptcy protection, you must still honor the automatic stay for as long as it lasts. Automatic stays usually last as long as the bankruptcy court case is open. If a creditor files an adversarial motion, and the bankruptcy judge signs an order, the creditor may get a leave of the automatic stay, and be allowed to recover the debt or judgment, while other creditors will not be allowed to recover from that debtor.
Bankruptcy is usually fatal to the enforceability of judgments, so it is the number one enemy of any judgment recovery. If you suspect your judgment debtor has or will file for bankruptcy protection, it is a good idea to verify their bankruptcy status before each step, using PACER; the government's Federal Court web site. PACER is very cheap, and almost mandatory for everyone that recovers judgments or debts.
Bankruptcy is so serious, it can be abused by debtors to fool creditors. For every three debtors that threaten to file for bankruptcy protection immediately, one actually does. Bankruptcy is so serious that many creditors do not verify the bankruptcy filing, they just walk away.
Another trick certain debtors try, is to file for bankruptcy protection, however they never follow through on their bankruptcy case. They only file so that they can get the automatic stay. Many creditors assume the bankruptcy filing means that their money judgment is automatically discharged, however that only happens after the debtor's bankruptcy successfully concludes and the court orders that. That is one more reason to get and use a PACER account.
Judgment owners should stay informed about their judgment debtor's bankruptcy court status. If their debtor's bankruptcy case gets dropped, dismissed, or denied, the judgment creditor is then free to crank up the judgment recovery machinery once again.
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