• 28
  • September
    2011

For many people in Nashville struggling to manage their debt, receiving a summons from a creditor can initiate the first of a series of sleepless nights. Summons are written in the legal language of attorneys and are frequently confusing to the average reader.

Even for those who have a valid defense, they may not have the assets to hire an attorney to represent them. Consequently, according to www.Forbes.com, the majority of these lawsuits wind up as default judgments against the debtor.

A judgment, whether it be by default or not, is a ruling by the court that a debtor owes the creditor money. Once that judgment is in place, the creditor has the right to execute that judgment and seize the debtor's assets.

When a creditor obtains a judgment against a debtor, there are a number of potential consequences the debtor should know about. Depending on the debtors' circumstance, filing bankruptcy may be the best way to avoid them.

Fallout From a Judgment

The first place that most creditors look is a debtor's bank accounts. Cash in bank accounts is the low hanging fruit for creditors. Once a judgment is in place, a creditor can garnish or levy money from any bank account with the debtors name on it. What is worse, they can do so without warning. A debtor will typically receive a letter from the bank after the money has been seized. This is small comfort for a family that has been struggling to save for a rainy day.

Here is a word of caution to anyone who is considering of hiding money in a friend or family member's bank account. Do not do it. There are bankruptcy rules that prohibit concealing funds or other assets by placing them in another person's possession.

Even if debtors are able to protect their assets from creditors, they may have another factor to contend with, wage garnishments. In Tennessee, a creditor may garnish a debtor's wages. The exact amount is determined by a formula, but for most people, the amount garnished ends up being approximately 25 percent.

There are a few other things debtors need to know about judgments. Judgments can stay on a credit report for a long time, typically ten years. Even after that time the judgment may not go away. The creditor may renew the judgment. In this case a debtor's possessions may remain vulnerable until the judgment is satisfied. Finally, judgments don't just apply to the property a debtor owns at the time it is issued. Judgments can be used to can be used to get property and possessions acquired at a later time.

Bankruptcy Offers Protection

One of the great advantages of bankruptcy for anyone with a judgment against them is that it provides protection from the judgment. Although a bankruptcy filing will not remove a judgment from a credit report, it will prevent creditors from contacting or pursuing a debtor to collect on a debt. This means that a creditor will not be able to garnish any wages or levy any funds from a bank account.

Even better, once a debtor's bankruptcy debt has been discharged, the debtor will be able to immediately start working to re-establish their credit. So, although bankruptcy in itself is a negative credit event, the discharge of the debt eliminates one of the loads that caused the debtor's credit report to suffer in the first place.