Will My Judgment or Settlement be Discharged in Bankruptcy?

A common question that people considering bankruptcy may have is whether or not a judgment that has been entered against them will be discharged through their bankruptcy. The short answer is that in many cases the answer is yes, but there are some circumstances that won’t discharge the debt.

For example, let’s say someone has gone to court and obtained a judgment against you for past due rent. Typically, this judgment can be discharged through a Chapter 7 bankruptcy and that debt will no longer be owed. While the landlord would still be able to follow through with an eviction before filing, the debt could be discharged in bankruptcy.

However, let’s say a municipal utility company gets a judgment against you for a past due utility on your home. In this case, the judgment may remain if the utility company seeks to add a lien on your property with that judgment. The judgment lien would remain on your property if you go through bankruptcy. If you were to sell your home at a later date, the lien would be paid out of the proceeds of the sale of the house.

In another example, let’s say you have entered into a settlement agreement with someone who brought a claim against you. Some settlement agreements contain standard language that doesn’t contemplate the defendant filing for bankruptcy at a later date. If this is the case, the settlement can be discharged through bankruptcy under the right circumstances.

Some settlement agreements will contain language that will protect the plaintiff in case the defendant files bankruptcy. Some examples of this would be requiring a guarantor for the defendant or having a third party make the payments to the plaintiff on behalf of the defendant. If the settlement agreement requires a guarantor then the defendant would be discharged of the debt through bankruptcy, but the plaintiff would still be paid by the guarantor. If the third party is contracted to make the payments, the plaintiff would have protection from the bankruptcy trustee attempting to recover the settlement payments.

However, some settlements or court ordered payments are not dischargeable. The bankruptcy code takes public policy considerations and prevents certain debts from being discharged. Obligations like alimony and child support will not be discharged through bankruptcy. If a settlement is the result of a defendant’s “bad act” it may survive bankruptcy as well. For example, if you have a settlement to pay due to a drunk driving accident, it is very unlikely to be discharged. But, the plaintiff will have to file suit again in bankruptcy to preserve the settlement and prevent discharge. In this situation, if the settlement agreement contains an admission of fault by the defendant then the settlement is nearly guaranteed to survive bankruptcy. If it does not, the issue of fault will need to be determined by the bankruptcy court. Other examples of non-dischargeable settlement obligations would be those involving repayment for property obtained by false pretenses, such as fraud or embezzlement. Again, the language of the settlement agreement would determine if the issue of guilt would need to be litigated again.

To find out your options with bankruptcy and any judgments or settlements you may have, contact our office and talk with one of our attorneys.