Interviewer: Will a bankruptcy stop any lawsuits?
Tanya: Correct, that is covered under the bankruptcy stay.
Interviewer: What happens if there’s a judgment against you and then you file for bankruptcy? What would it do to the judgment?
Bankruptcy Does Not Eliminate a Judgment When a Lien Is Attached to Property
Tanya: What is does is it eliminates your obligation to pay the debt. However, the bankruptcy on its face does not eliminate the judgment which is the lien if there is property for it to attach to.
For example, if you own a house with a value of $300,000 house – and your mortgage on the house is really only $200,000 and American Express sued you for $25,000 and you file for bankruptcy, the lender can get the judgment on the house. The judgment attaches to the property because there’s equity in that house.
The fact that you filed for bankruptcy, prevents your creditors from placing a levy against your bank accounts. However, when you try to sell that house, the judgment is going to have to be paid out because it attaches to the property.
If you didn’t own a house at all and you had that $25,000 judgment issued against you and you filed for bankruptcy, it cannot attach to a house after the bankruptcy.