“Slow money better than no money” – 4 Ways to Get Rid of a Judgment.

If a creditor sues you and gets a judgment, it has a whole host of collection methods available to get its money from you, including wage attachments, property levies, assignment orders. There are only 3 ways to get rid of judgment: 1) Vacate it; 2) Satisfy it, or 3) Discharge it. In your analysis of which approach is best for you, you should follow that same order: First, can I vacate the judgment? If not, can I satisfy the judgment? If not, can I discharge the judgment in bankruptcy? The judgment will be filed with the court, and once that happens, it is public record. That means it will likely end up on your credit reports as a negative item.

Unpaid judgments can remain on your credit reports for seven years or the governing statute of limitations, whichever is longer. Once judgments are paid, they must be removed seven years after the date they were entered by the court. Beginning last July 2017, the credit bureaus will exclude judgments that don’t contain complete consumer details or have not been updated in the last 90 days. Lastly, if a judgment was entered against you in California, it can show up on your credit report for ten years, or even 20 years if the creditor renewed it on time.

1)      Is vacating the judgment an option for me? If you contested the case (answered the lawsuit) and the court entered a judgment against you, vacating the judgment will be very unlikely. If however a default judgment (you did not answer the lawsuit) was entered against you, you should determine if you can have the judgment vacated (or what is sometimes referred to having the judgment “set aside”). In order to vacate a judgment in California, You must file a motion with the court asking the judge to vacate or “set aside” the judgment. Among other things, you must tell the judge why you did not respond to the lawsuit (this can be done by written declaration).

The reason and the timing of your motion are very important and really should not be done without the assistance of a lawyer. Generally speaking, if you had no actual notice of the lawsuit (for example, you were not served properly), you have two years from the date the judgment was entered against you to make the motion. If you knew about the lawsuit but did not timely respond, you have 6 months to make the motion based on “excusable neglect.” Missing the court date because of a serious illness or because a court officer gave you incorrect information, for example, would be considered excusable neglect. Forgetting about or ignoring the case does not qualify as excusable neglect. The horror story I hear all too often is that the judgment is more than 2 years old, the consumer never knew about it, and now nothing can be done about it. The 2-year limit is a law that needs to be changed.

If your motion is successful, the judgment is vacated, and you then get to contest the case. When you can contest the case, you have a lot more options regarding how to resolve the case. Settlements of contested cases are usually far better than settlements of judgments. You may even be able to win the case. Either way, the judgment creditor no longer has the ability to levy your bank accounts, garnish your wages, or lien your property.

2)      How do I satisfy the judgment? This means to settle the judgment and have the judgment creditor file a “Satisfaction of Judgment” with the court. Around the courthouse there is a saying, “Slow money is better than no money”. Judgment creditors routinely settle judgments for less than the full balance.

So you may be able to negotiate a discount on the debt, in return for a lump sum payment. If a large payment isn’t financially possible, a stipulated judgment allows you to pay in monthly installments, shielding you from garnishment, levies, and liens on your property. Most creditors are happy to do that, rather than get an uncollectible judgment. This is a lot easier than having to chase down your assets and avoids the possibility that your income and property is exempt from seizure. For example, seizing your car will mean hiring a towing service and, in some jurisdictions, paying for 30 days of bonded storage.

Many post-judgment debt settlements are concluded with a phone call from a bankruptcy attorney, giving the debtor more leverage. When creditors’ lawyers hear from a bankruptcy attorney’s office, they understand that bankruptcy is a reality, which ratchets up the pressure on them to make a deal. Settlements may wipe out as much as 75 percent or 85 percent of the debt if most or all of the payment can be made promptly.

Do not make payments unless you have a clear WRITTEN agreement that states exactly how much is to be paid and when. Never enter into an agreement that states something to the effect: “we will review/reassess this payment arrangement in 6 months”. Once a settlement is complete, get a satisfaction of judgment signed by the creditor, and make sure it is filed with the court and reflected on your credit reports.

3)      Should I Discharge the judgment through bankruptcy? Among the choices for dealing with a judgment, declaring bankruptcy is the nuclear option. Notable exceptions are judgments based upon fraud and elder abuse. Bankruptcy is a powerful weapon for wiping out debt but comes with serious consequences for the debtor who pushes the button. Having assets and income to protect are an important hallmark of a need to file bankruptcy. According to the Office of U.S. Courts, the average Chapter 7 consumer bankruptcy case filed in 2012 had nearly $116,000 in total assets and median monthly income of $2,764. In fact, California is one of the few states that gives you two separate lists of assets you can exempt (http://www.courts.ca.gov/documents/ej155.pdf).  You can’t mix and match between the two exemption schemes, however, so you’ll want to scrutinize each and select the list that will work best for you.

Filing a bankruptcy petition will place an automatic stay on the judgment and any enforcement actions, including wage garnishment, while you work with the court to reorganize your finances.

In a Chapter 7 bankruptcy, the trustee will sell the property you can’t exempt and use the funds to pay unsecured debts—such as credit card balances, personal loans, and utility bills. In Chapter 13 bankruptcy, the trustee doesn’t sell your nonexempt property (the more property that is exempt, the less you have to repay). Instead, you keep it and pay the value of it to your unsecured creditors through your three- to five-year repayment plan. Before you can wipe out debt in a Chapter 7 bankruptcy, you must meet income qualifications by passing the “means test.” You’ll provide your family income on the means test forms. If it exceeds the median income of your state, you can subtract particular expenses. The needed income charts and pre-set expense guidelines are on the U.S. Trustee’s website (select “Means Testing Information” in the left column). The same data gets used to determine the length and amount of a Chapter 13 bankruptcy payment.

California, being a large state, has four bankruptcy courts, most of which have multiple locations serving various geographical areas. Each office often has a webpage where you can access information. The Central District serves Los Angeles (http://www.cacb.uscourts.gov/). Costs for legal fees are typically around $1,500 or more, limiting the bankruptcy option. Other drawbacks include restrictions on filing bankruptcy again — such as an eight-year wait for filing another Chapter 7 case — and a 10-year demerit on your credit report. For those reasons, bankruptcy may be more useful as a bargaining tool in settlement talks than as a plan of action.

If bankruptcy is not an option for you, and the judgment is more than 2 years old, the only real option you have is to satisfy/settle the judgment. Until you are able to do that, do everything you can to frustrate the judgment creditors ability to enforce the judgment. For example, do not leave your money in the bank to be attached.

4) Am I Judgement Proof? People with few assets and modest income may be “judgment-proof,” because legal protections exempt them from collection. But that does not mean you can ignore a judgment. It takes work to determine that your wages and belongings are protected from seizure by a complex web of state and federal exemptions. And you should take steps to head off wrongful collection attempts on your exempt property before they happen. It is important to know that, even if you’re judgment proof, you may be made uncomfortable by having your employer told to deduct sums from paycheck.

Most importantly, just because a judgment creditor levies on your property or attaches your wages, it doesn’t mean that the creditor is entitled to take the property. California law limits the amount that a creditor can garnish (take) from your wages for repayment of debts. California’s wage garnishment limits are similar to those found in federal wage garnishment laws (also called wage attachments). For most debtors, creditors cannot garnish more than 25% of their wages after deductions (http://www.courts.ca.gov/11418.htm). If your wages are low, however, California law protects even more of them (and even more than does federal law). Be careful if you are self-employed. With non-earnings garnishments, a creditor can seize one-hundred percent of an expected compensation, such as sales commissions, contract payments, or receivables. However, this is a one-time seizure of income. Non-earnings garnishments are not ongoing like wage garnishments. While traditional wage garnishments are limited by law to disposable income from paychecks, creditors seeking compensation through a non-earnings garnishment can levy your bank accounts, income received from rental properties, and other sources.

Every state exempts certain property from creditors (https://saclaw.org/wp-content/uploads/lrg-exemptions-from-the-enforcement-of-judgments.pdf). This means that creditors simply cannot have that property, no matter how much you owe. Also, you may be able to keep property that isn’t exempt if you can prove to the court that you need it to support yourself or your family. When filing for Chapter 7 or Chapter 13 bankruptcy, California allows you to choose between two different sets of exemptions (you must choose one system or the other). Exemptions protect your property in any bankruptcy chapter that you file. Generally, debtors with substantial home equity prefer System 1 while System 2 is more beneficial for debtors who have valuable property other than home equity. Be sure to compare each set and choose the one that works best for your situation. In addition to the exemptions found in System 1 or System 2, you might also use any applicable amounts in the federal non-bankruptcy exemptions.

Any time the sheriff or marshal levies against your property, you must be notified. You can request a hearing, which is usually called something like a claim of exemption hearing, to argue that it will be a financial hardship on you if the property is taken, or that your property is exempt under state law. If you lose that hearing and your wages are attached, you can request a second hearing if your circumstances have changed, causing you hardship (for example, you have sudden medical expenses or must make increased support payments).

When you are notified of a property levy (such as a bank account attachment) or an assignment order, you will be told in writing how to file a claim of exemption — that is, how to tell the judgment creditor you consider the property unavailable. The period in which you must file your claim is usually short and strictly enforced — don’t miss it.

Complete and send a copy of your claim of exemption to the judgment creditor. In some states, you’ll also have to serve it on the levying officer, such as the sheriff. The judgment creditor will probably file a challenge to your claim. The judgment creditor may abandon the attachment, levy, or assignment order, however, if it’s too expensive or time-consuming to challenge you. If the creditor does abandon it, your withheld wages or taken property will be returned to you. If the judgment creditor doesn’t abandon the attachment, levy, or assignment order, the creditor will schedule a hearing before a judge and you’ll have to convince the judge that your property is exempt or that you need it to support yourself or your family. This is your opportunity to defend yourself from having your wages or other properties taken. You must do all that you can to prepare for this hearing if you want to keep your property. If you have high income one month, bring in pay stubs to show that you usually make less. Or, if your bills are higher than average, bring copies. Think carefully about your income and financial situation. There may be other creative but truthful ways to show the judge that your property is exempt or necessary to support yourself or your family.

The judge will listen to both you and the judgment creditor if the judgment creditor shows up. Sometimes the judgment creditor relies on the papers already filed with the court. The judge may make a ruling or may set up an arrangement for you to pay the judgment in installments.

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