Judgments: Discharging in bankruptcy, negotiating settlement, vacating

Options for Resolving Judgments

If a creditor, debt collector, or debt buyer has sued you and won a judgment, you can still take steps to protect yourself and your assets from collection.

Judgments in California accumulate interest at 10% per year, and can be renewed by the judgment creditor every 10 years. 

What started out as a small judgment can quickly become a large one.

Once a creditor has a judgment, it can garnish wages, levy bank accounts, and file liens on assets to collect the judgment.

Depending on the circumstances, you could have several strategies for resolving a judgment.

These might include:  (1) Chapter 7 or Chapter 13 bankruptcy, (2) settling the judgment and notifying the court of a Satisfaction of Judgment, and (3) vacating the original judgment under some circumstances.

These options are discussed in more detail below.

Discharging Judgments in Chapter 7 and Chapter 13 Bankruptcy

People are sometimes shocked when we tell them judgments can be discharged in bankruptcy just like any other unsecured debt.

Even real estate title companies are confused by this. Title companies often think that an old judgment survived a bankruptcy just because it was a “judgment.”

But in California, judgments  can be discharged like any other unsecured debt. This is true if the judgment has not yet been reduced to a lien.

Settling Judgments

Once a creditor has a judgment, there’s nothing you can do, right?

Not exactly. The judgment does give the creditor additional leverage. For example, the creditor can use the judgment to garnish your wages, levy your bankruptcy accounts, and record liens on other assets. 

But, suppose you are currently unemployed or living on social security? It might be difficult for a creditor to collect. 

In many situations, the creditor might be willing to settle with you for less than the total amount of the judgment.

But, be sure to resolve all judgments well before buying or selling a house. Your options become very limited when you are under the time constraints imposed by a home purchase or sale.

In California, judgments accumulate interest at 10% per year and can be renewed every 10 years. So, you don’t want to ignore an old judgment. It is likely to follow you for the foreseeable future unless you resolve it.

Vacating Judgments

Suppose a creditor claims it served you with a summons and complaint in a debt lawsuit. 

Maybe you can prove they did not serve you.

You could have grounds to vacate a default judgment entered against you. 

In fact, there are several situations in which you might be able to vacate a judgment or default judgment.

These are (partially) addressed in California Code of Civil Procedure (CCP) sections 473(b),  473(b), 473(d) and 473.5

Some of the grounds to vacate judgment are very time sensitive. Contact an attorney as soon as you find out a judgment has been entered against you.

If you succeed in vacating the judgment, keep in mind you still have to relitigate the case.