In civil court, a judgment is an order issued by the court after the plaintiff prevails on the merits of its case. Judgments are typically measured in money damages that are measured to compensate the plaintiff for its losses or the harm done to it.
If a creditor sues you in Arizona court for a past-due debt and obtains a judgment, they can use that judgment to collect the amount owed—which, with interest and court costs, often exceeds your original debt balance.
If you do not have funds available to pay the judgment award outright, then the creditor may seek to garnish your wages, garnish your bank account, or, if you own residential property, place a judgment lien on your house.
Sometimes, a judgment debtor will want to know whether it is possible to use federal bankruptcy law to avoid collection actions on a judgment lien. The answer to this question depends on the nature of the judgment.
At Stone Rose Law, our bankruptcy lawyers represent Arizona residents facing crushing debts, including judgment orders. In this post, we examine how you may be able to use Chapter 7 or Chapter 13 bankruptcy to eliminate judgment debts.
To learn more about filing bankruptcy in response to a judgment or about bankruptcy issues in general, and to schedule a free consultation with one of our experienced bankruptcy attorneys, call us at (480) 739-2448 or use our online contact form.
Which Judgments are Dischargeable Debts in Bankruptcy Court?
You can consider judgments in three categories:
- Judgments you can discharge through bankruptcy
- Judgments you cannot discharge
- Dischargeable judgment debts that still leave a lien on your property, subject to the debt
We consider each of these categories below.
Judgments You Can Discharge Through Bankruptcy
Generally, judgments on unsecured debts (debts not secured by collateral) are dischargeable through bankruptcy. Examples of these kinds of debts include:
- Credit card debt balances
- Medical bills
- Personal loans
- Unpaid rent
- Debts based on breach of contract
- Most small‑claims money judgments
These kinds of debts you can completely eliminate in Chapter 7 bankruptcy.
In a Chapter 13 bankruptcy debt repayment plan, you may need to repay some unsecured debts, including judgment debts. How much you might need to pay is based on the rule in Chapter 13 that unsecured creditors must be paid at least as much as they would have received if you used Chapter 7 instead.
In a Chapter 13 bankruptcy, once you have successfully completed your payment plan, any remaining unsecured debts that are dischargeable under 11 U.S.C. § 1328(a) are discharged.
Judgments You Cannot Discharge
Some kinds of debts you cannot discharge, regardless of whether they are subject to a judgment order. Non-dischargeable debts include:
- Child support and spousal support
- Criminal fines or restitution
- Judgments for fraud
- Judgments for willful or malicious injury
- DUI‑related injury or death judgments
- Most recent tax debts
- Most student loan judgments
In some cases, if a creditor has not already obtained a judgment order against you, it may seek permission from the bankruptcy court to begin an adversary proceeding against you. These kinds of debts include:
- Fraud used to obtain money for goods and services
- An injury caused by malicious acts
- Fraud committed while acting as a guardian or trustee
Dischargeable Judgments that Leave a Lien on Debt-Secured Property
Sometimes, a creditor who obtains a judgment order will secure it with a judgment lien. Examples include judgment liens that can attach to your home or your vehicle. In Arizona, judgment liens may attach to your homestead property, but enforcement is limited by the homestead exemption.
If the creditor recorded a judgment lien before bankruptcy, that lien may remain unless it is avoided. After bankruptcy discharge, the creditor cannot collect money from you personally, but the lien may continue to encumber your property.
In many cases, the lien simply remains in place and is enforced only if the property is sold or refinanced, unless the creditor successfully pursues a court‑approved execution and the lien is not avoided by exemptions.
Lien Avoidance
In some situations where a lien exists on your property, you may be able to have it removed under a part of the U.S. Bankruptcy Code, 11 U.S.C. 522(f). This section allows you to eliminate some kinds of liens if they would impair a bankruptcy exemption you are otherwise entitled to claim under Arizona’s bankruptcy exemptions (Arizona is an opt-out state, meaning you must use Arizona exemptions instead of federal bankruptcy exemptions). This is known as lien avoidance.
The effect of lien avoidance is to eliminate the lien as a matter of law. This prevents the creditor from foreclosing or executing on the lien, clears your title to the property for sale or loan refinancing purposes, and, if the debt is otherwise non-dischargeable, converts the creditor from secured to unsecured status.
Lien avoidance may apply if you are using Chapter 7 or Chapter 13 bankruptcy.
- In a Chapter 7 case, you can file a motion to avoid a judicial lien.
- Under Chapter 13, lien avoidance can be accomplished through the debt repayment plan.
The kinds of exemptions that can be impaired by an Arizona exemption include:
- Furniture
- Appliances
- Household goods
- Tools of your trade
Examples of Arizona bankruptcy exemptions you might be able to use for lien avoidance purposes include the homestead exemption and the vehicle exemption.
Lien avoidance does not apply, however, to the following kinds of consensual or statutory liens:
- A mortgage or deed of trust
- A car loan used to buy the vehicle
- Tax liens
- Homeowners association liens
- Mechanic’s liens
Your bankruptcy attorney can help you determine whether lien avoidance is possible in your case.
Can You Avoid Judgments Outside of Bankruptcy?
Aside from bankruptcy court, in some circumstances, you may be able to remove a judgment by having the court vacate it or by working with the creditor to satisfy the debt.
A motion to vacate a judgment is a legal action under Arizona law that debtors often use when the creditor obtains a default judgment or when the judgment is void. A successful motion to vacate removes the judgment, but does not eliminate the debt. Often, the creditor will refile the lawsuit on the debt.
Satisfying the debt means that you reach a settlement with your creditor to pay a certain amount in satisfaction of the debt. If the creditor has already obtained a judgment against you on the debt, the creditor will file a satisfaction of debt with the court.
Are You Being Sued Over a Past-Due Debt in Arizona?
If a creditor has obtained a judgment order against you based on past-due amounts you owe, or if a creditor has already obtained a judgment order or judgment lien against you, you may have options in and outside of bankruptcy to avoid or remove the judgment or to eliminate the underlying debt.
A Stone Rose Law bankruptcy lawyer can help you understand your legal options. During a free consultation, we can review the facts of your case and explain your options. If a bankruptcy filing is the better choice for you, we can help you file under Chapter 7 or Chapter 13.
Once you file the bankruptcy petition, the bankruptcy automatic stay will stop ongoing creditor lawsuits and other collection actions against you during the processing of your bankruptcy case.
To speak with an experienced Stone Rose Law bankruptcy lawyer, call us at (480) 739-2448 today, or reach us online.
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