After winning lawsuits, creditors must take extra steps to actually collect on judgments that were awarded. The court does not collect the money that is owed. While some individuals are able to pay judgments against them, many do not have the money to pay. If you are in this difficult financial position, you should consult a bankruptcy attorney at the Grainger Law Firm. We can help you explore the options that may be suitable to your circumstances, as we have for many Alabama individuals in similar situations.
When a judgment has been entered against you, a creditor may try to force you to pay, try to garnish your wages, or try to place a judgment lien on your property, or arrange for the Sheriff to sell whatever property you own which exceeds your exemptions. In general, wage garnishment only works if a debtor has a job. The government limits how much a creditor may take out of a paycheck when garnishing it to seventy-five percent (75%) of your income after taxes are withheld by your employer.
In Alabama, a creditor can place a judgment lien on your real property (or your personal property or vehicle) in order to collect the judgment, and it will remain attached to your real property for 10 years, even if you sell the property. A creditor’s ability to collect under a judgment lien of this nature will be affected by multiple factors, including whether or not the property is your primary residence, other liens, and bankruptcy.
There are different consequences to collectors when you file for Chapter 7 or Chapter 13 bankruptcy. If you are able to file for Chapter 7 bankruptcy, an automatic stay will go into place. This means that as soon as a creditor learns of a bankruptcy, it must stop any efforts at collecting. Over a short period of time, all dischargeable debts—usually consumer debts like medical debt or credit card debt—will be discharged through the process. Creditors will only get repaid to the extent that a Chapter 7 debtor owns un-exempt assets that can be sold to repay creditors.
When a debtor files for Chapter 7 bankruptcy, certain items of property will be protected from being sold to repay creditors by the Alabama exemption system. For example, in Alabama a debtor can protect up to $5,000 of equity in his or her homestead or mobile home. A married couple who are filing bankruptcy jointly can protect $10,000 of equity in a homestead. There is also a wildcard exemption that allows an individual filing for bankruptcy in Alabama to exempt $3,000 ($6,000 for married couples) of any personal property except life insurance.
Once a judgment is recorded as a lien, it cannot be eliminated but may be able to be “avoided” within the bankruptcy case in determining the rights of the creditors. Some lenders will later accept the avoidance of the lien in bankruptcy as a reason not to pay it when refinancing or selling real estate.
You can qualify for lien avoidance if the lien came from a money judgment that was issued against you and to which you did not consent in settlement, you have equity in property that you can fully exempt, and the judgment lien interferes with the equity you have exempted.
If you do not take steps to file for lien avoidance, the creditor can still take the property or force its sale by the Sheriff. If the property with a judgment lien is a house or car and the creditor does nothing, the lien remains on the property until it expires.
If your financial situation is complicated and causing you anxiety, and you believe one or more creditors may try to collect on judgments, filing for bankruptcy in the Montgomery area may be a sound solution. The lawyers at Grainger Legal Services know how to assess the options that may be available to you and can help you through the daunting process of filing for Chapter 7 or Chapter 13 bankruptcy. We serve clients from throughout South-Central Alabama from our offices in Montgomery, Troy, and Prattville. Call us at (334) 260-0500 or contact us online to schedule a consultation.