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Bankruptcy, Judgments, and Liens: What You Need to Know


Why Do Creditors Sue for Unpaid Debts?

Borrowing money in the form of a loan or a mortgage carries a legal expectation for the borrower to repay what they owe. Larger debts are usually secured by property or real estate. Common secured debts include home equity loans, automobile loans, and mortgages.

If you fail to pay these secured debts, the borrower has legal standing to foreclose upon or repossess the property or real estate.

Many common debts, including credit cards and personal loans, are not secured by real estate or property. If payments are not made, a lender can file a lawsuit against you. If you fail to respond to the lawsuit or are unsuccessful in defending against it, the court will issue a judgment against you for the value of the debt. This is essentially a legal order for you to pay your creditor.

With a judgment in hand, lenders are empowered to pursue a variety of collection actions. These could include wage garnishments, account freezes, and liens against your property.

Bankruptcy questions? Contact The Law Office of David M. Offen at (215) 625-9600 to schedule your free consultation.

What Are Liens?

Liens are notices filed with state agencies to record debts against a property. By placing a lien against a vehicle or property, a lender can collect money from the sale of that property to settle the debt which is owed them. 

Does Bankruptcy Clear Judgments?

Bankruptcy does not always automatically reverse judgments or remove liens, but it does provide protection from them. When a bankruptcy proceeding is filed, an automatic stay goes into effect.

This automatic stay will protect you from a variety of legal actions.

  • A stay will prevent the commencement or continuation of legal proceedings to recover debts.
  • The enforcement of a judgment entered before bankruptcy was declared against the debtor and the debtor’s property or estate will be halted.
  • Foreclosures, sheriff’s sales, or other acts to take possession of the property of the debtor are halted.
  • Liens to secure a debt or claim that arose before the bankruptcy was filed cannot be enforced.
  • Acts to reclaim or recover claims against the debtor that arose before the bankruptcy will be halted.
  • The commencement or continuation of Tax Court proceedings for tax liabilities in the period before the bankruptcy was filed will be halted.

The automatic stay does not mean that the debts, liens, or judgments have been erased.

How judgments are handled in bankruptcy will depend on what kind of debt they relate to: priority, secured, or unsecured.

Priority Debts

Priority debts must be repaid. They cannot be discharged through bankruptcy, so if asset liquidation does not cover the full priority debt they will still need to be paid.

Priority debts include most state and federal tax obligations, alimony and child support, and judgments awarded as a result of death or injury caused by driving while intoxicated.

Unsecured Debts

Unsecured debts can be discharged. Even if a judgment has been entered, these debts are wiped out by successfully completing a bankruptcy case. If you file a Chapter 7 bankruptcy, non-exempt assets can be liquidated to pay these unsecured debts. In a Chapter 13 bankruptcy, disposable income will be used to pay down these debts for the duration of your repayment plan, with the remainder completely discharged upon the successful completion of the plan.


If an unsecured debt has already been entered against your property as a lien, the record may remain on file after successfully discharging the related debt.

If this happens, your bankruptcy lawyer can file a motion to have the lien dismissed. He or she may also contact the lien holder directly to request that they remove the lien or mark the lien satisfied, as they no longer have a legal right to collect the discharged debt.

Some liens may not be dischargeable. As with any other debt, you should disclose any and all liens to your bankruptcy lawyer.

Adversarial Proceedings

Within your bankruptcy proceedings, creditors and the bankruptcy trustee can file challenges to the discharge of debt or make accusations of fraud.

Creditors with certain kinds of judgments may be able to force you to repay otherwise dischargeable debts using an adversarial motion.

Such motions might be used if you face civil judgments related to criminal acts such as assaulting someone or damages from malicious and willful behaviors.

Misrepresenting yourself in fraudulent ways, such as on credit applications claiming you have a very high income, could also expose you to an adversarial motion to make the allegedly fraudulent unsecured debts non-dischargeable.

If these actions are successful, debt from these type of judgments will be treated like other priority debts and not discharged. While these types of actions do exist, they are typically not seen except where the debtor has behaved in a highly improper way.

Can I File Bankruptcy After Being Sued?

If you file bankruptcy while being sued for a civil matter concerning finances or property, the automatic stay will freeze the court action and creditors will have to work through the bankruptcy framework to recover what they’re owed.

If you are being sued over child custody, alimony or are in the process of divorce, the stay will not always stop those proceedings.

Filing bankruptcy after losing a lawsuit is also possible. An adverse judgment after being sued by a creditor may be the financial warning sign that pushes you to consider bankruptcy.   

If you cannot afford to pay the judgment against you stemming from a civil case not related to debt, you should consult an experienced bankruptcy attorney to make sure it can be discharged by filing bankruptcy.

Can’t Afford to Pay Judgments?

Contact The Law Offices of David M. Offen for a free consultation. David M. Offen, Esq. has helped more than 12,000 clients and has the experience you need to get free of debt. He can help you decide if bankruptcy is the right solution for your problems. To schedule your free consultation, call (215) 625-9600 today.

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