Attorney for Declaring Bankruptcy for Protection From a Recent Court Judgment

A judgment has been entered against you. Maybe you were served with a debt collection summons months ago and never answered; maybe you fought the case in Civil Court and lost. Either way, the creditor now holds a piece of paper that converts an ordinary unpaid bill into a legal weapon — one that can freeze your checking account, take 10% of your paycheck, put a lien on your home, and follow you for twenty years.

The most important thing to understand is that a judgment is not the end of the road, and the period immediately after a judgment is entered is often the best time to file for bankruptcy rather than the worst. Federal law gives a debtor who files quickly a set of tools that disappear if you wait: the automatic stay that halts collection the moment the petition is docketed, the power to avoid judicial liens that impair an exemption, and a 90-day window in which liens and levies obtained by the judgment creditor can be undone entirely and money already taken can be recovered.

This page explains what the judgment against you can do, what bankruptcy does to it, which judgments survive a discharge, and why timing decides how much of your money you keep.

What a Recent New York Judgment Actually Empowers a Creditor to Do

Once a money judgment is entered and the creditor files the transcript with the county clerk, the creditor's attorney does not need to return to court for permission to collect. Under Article 52 of the CPLR, the creditor can immediately:

• Freeze your bank accounts. A restraining notice under CPLR 5222 served on your bank locks the account, often before you know a judgment exists. The bank freezes twice the judgment amount.
• Garnish your wages. An income execution under CPLR 5231 takes 10% of gross income, capped at 25% of disposable earnings, and does not apply at all if you earn less than 30 times the minimum wage per week.
• Create a lien on your real estate. Under CPLR 5203, docketing the judgment with the clerk of a county creates a lien on any real property you own in that county — for ten years, and extendable.
• Send a New York City marshal or the sheriff to levy on bank accounts, vehicles, and business receivables.
• Serve information subpoenas compelling you and third parties to disclose where your money is, with contempt exposure if ignored.

The judgment itself is enforceable for twenty years under CPLR 211(b), and post-judgment interest accrues at 9% per year on most judgments — 2% per year on consumer debt judgments entered on or after April 30, 2022 under CPLR 5004(b). A $20,000 judgment left alone at the general rate roughly doubles in eight years.

How Bankruptcy Stops the Judgment: The Automatic Stay

The instant a bankruptcy petition is filed, 11 U.S.C. § 362(a) imposes an automatic stay that operates as a nationwide injunction. No hearing is required and no judge has to sign anything. Specifically, § 362(a)(2) stops "the enforcement, against the debtor or against property of the estate, of a judgment obtained before the commencement of the case."

In practical New York terms, filing the petition:

• Voids further effect of a restraining notice — the bank must release the account once the freeze is lifted through the stay and, where necessary, a turnover demand.
• Stops an income execution; the employer must cease withholding on notice. See our page on stopping wage garnishment through bankruptcy in NYC.
• Halts a scheduled marshal levy or sale. See stopping a New York City marshal with bankruptcy.
• Stops post-judgment discovery, information subpoenas, and contempt applications.
• Suspends any pending state court proceeding to enforce or collect.

Acts taken in violation of the stay are void, and § 362(k) allows an individual debtor to recover actual damages, costs, attorney's fees, and in appropriate cases punitive damages from a creditor that willfully violates it. If a levy is days away, an emergency bankruptcy filing — a skeleton petition filed within hours — puts the stay in place the same day.

The Critical Point: A Judgment Does Not Make a Debt Nondischargeable

Many people believe that once a creditor "wins in court," the debt is permanently theirs to collect. That is not how bankruptcy works. The discharge under 11 U.S.C. § 727 (Chapter 7) or § 1328 (Chapter 13) operates on the nature of the underlying claim, not on the label the state court put on it. A judgment on a credit card balance is still a credit card debt. A judgment on a medical bill is still a medical debt.

Ordinary money judgments arising from the following are fully dischargeable:

• Credit cards and store cards, including judgments obtained by debt buyers
• Medical bills and hospital collection judgments
• Personal loans, payday loans, and signature loans
• Auto loan and lease deficiency judgments after repossession
• Breach of contract and account stated judgments
• Old rent arrears and money judgments for use and occupancy
• Personal guarantees on business debt and commercial leases
• Judgments on debts you co-signed

The discharge injunction of 11 U.S.C. § 524(a)(2) permanently bars the creditor from any attempt to collect on the judgment as a personal liability — no calls, no letters, no restraining notices, no income executions, ever.

Judgments That Survive: 11 U.S.C. § 523

A minority of judgments are excepted from discharge. The common categories are:

• § 523(a)(2) — money obtained by fraud, false pretenses, or a materially false written financial statement
• § 523(a)(4) — fraud or defalcation while acting in a fiduciary capacity, embezzlement, larceny
• § 523(a)(6) — willful and malicious injury to another person or property (assault judgments, intentional torts)
• § 523(a)(9) — death or personal injury caused by operating a vehicle while intoxicated
• § 523(a)(5) and (a)(15) — domestic support obligations and, in Chapter 7, divorce property settlements
• § 523(a)(7) — fines and penalties payable to a governmental unit, which is why most parking and traffic judgments require a closer look
• § 523(a)(1) and (a)(8) — recent taxes and, absent undue hardship, student loans

A Default Judgment Alleging Fraud Is Usually Not Preclusive

This is a distinction that saves cases. If a creditor obtained a default judgment on a complaint that recited fraud, the creditor does not automatically get a nondischargeable debt. Collateral estoppel requires that the issue have been actually litigated and necessarily decided, and under New York law a default judgment generally does not satisfy that requirement because nothing was actually litigated. The creditor must file an adversary proceeding in the bankruptcy court and prove fraud there — and under Federal Rule of Bankruptcy Procedure 4007(c), it must do so within 60 days after the first date set for the § 341 meeting of creditors. Miss that deadline and the debt is discharged even if fraud could have been proven. Most consumer creditors never file.

Removing the Judgment Lien From Your Home: 11 U.S.C. § 522(f)

The discharge wipes out your personal liability, but it does not by itself remove a lien that has already attached to real property. If the judgment was docketed in a county where you own a home, co-op, or condo, that judicial lien survives unless it is affirmatively removed — and this is the single most valuable service a bankruptcy attorney performs for a judgment debtor who owns property.

Section 522(f)(1)(A) allows the debtor to avoid a judicial lien "to the extent that such lien impairs an exemption to which the debtor would have been entitled." The statutory formula in § 522(f)(2) adds the judicial lien, all other liens on the property, and the exemption amount; anything by which that sum exceeds the property's value is the amount of impairment, and the judicial lien is avoided to that extent.

New York's homestead exemption under CPLR 5206 is what makes this work downstate. The exemption is $204,825 in Kings, Queens, New York, Bronx, Richmond, Nassau, Suffolk, Rockland, Westchester, and Putnam counties, $170,700 in Dutchess, Albany, Columbia, Orange, Saratoga, and Ulster, and $102,400 elsewhere in the state; these figures adjust every three years under CPLR 5206(f). Our page on the New York City homestead exemption covers how it applies to houses, condos, and co-op shares.

Worked example. A Brooklyn homeowner has a house worth $700,000 with a $560,000 mortgage. A debt buyer docketed a $48,000 judgment last month. Applying § 522(f)(2): $48,000 judicial lien + $560,000 mortgage + $204,825 homestead = $812,825, which exceeds the $700,000 value by $112,825. Because the impairment exceeds the lien, the entire $48,000 judgment lien is avoided and stripped from the property. The homeowner keeps the house, the mortgage is unaffected, and the judgment is gone from the title.

Lien avoidance is not automatic. It requires a motion under Federal Rule of Bankruptcy Procedure 4003(d), served on the judgment creditor, with an appraisal or comparable evidence of value. After the court signs the order, a certified copy should be recorded with the county clerk so that title searches show the lien removed. Separately, New York Debtor and Creditor Law § 150 permits a judgment debtor, one year after a bankruptcy discharge, to apply to the state court that entered the judgment for an order discharging it of record — the cleanest way to clear a docketed judgment that never attached to property.

The 90-Day Window: Why Filing Soon After a Judgment Matters Most

This is the part that turns a recent judgment from a disaster into an opportunity. Under 11 U.S.C. § 547(b), a transfer of the debtor's property to a creditor on account of an antecedent debt, made while insolvent and within 90 days before the bankruptcy filing, is an avoidable preference if it lets that creditor receive more than it would in a Chapter 7 liquidation. Judgment enforcement creates exactly such transfers:

• The docketing of a judgment lien within the 90 days is an avoidable transfer, meaning the lien can be eliminated on preference grounds even where § 522(f) would not fully reach it.
• A bank levy or marshal's execution within the 90 days can be avoided and the money returned.
• Wages garnished in the 90 days before filing are recoverable.

Under 11 U.S.C. § 522(h), where the trustee does not pursue the avoidance, the debtor may do so personally to recover property that would have been exempt. One limit applies in consumer cases: § 547(c)(8) bars avoidance where the aggregate value of the property transferred is less than $600 in a case involving primarily consumer debts.

The consequence is blunt. A debtor whose account was frozen and swept three weeks ago may get that money back by filing now. The same debtor who waits five months has lost it permanently. If a marshal has already taken funds, read our page on stopping an NYC bank levy with bankruptcy, which covers recovery of levied funds in detail.

Bankruptcy or Fight the Judgment? The Realistic Comparison

Bankruptcy is not always the first move. Where the judgment was entered on default and you were never properly served, a motion to vacate under CPLR 5015(a)(1) — requiring a reasonable excuse and a meritorious defense, generally within one year of service of notice of entry — or under CPLR 317 for improper service, may eliminate the judgment and let you defend the case. Our page on vacating a default judgment in New York City explains that procedure, and if the debt is old, the statute of limitations on debt in New York may be a complete defense.

The honest trade-off looks like this:

• Vacating makes sense when there is one judgment, a genuine defense (never served, wrong person, time-barred, debt already paid, no proof of assignment under the Consumer Credit Fairness Act), and your other debts are manageable.
• Bankruptcy makes sense when the judgment is one of several debts, when you cannot pay the underlying obligation even if you lose the procedural fight, when there is a lien on your home, or when enforcement is already underway and you need the freeze lifted now.

Note also that filing a notice of appeal does not stop enforcement. Under CPLR 5519, a stay pending appeal generally requires posting an undertaking in the full amount — rarely realistic for a consumer debtor. The automatic stay costs a filing fee.

Chapter 7 or Chapter 13 for a Judgment Debtor

Chapter 7 is the usual choice: three to four months from filing to discharge, no payments to unsecured creditors, judgment liens avoided by motion during the case. It requires passing the means test and having equity within the New York exemptions.

Chapter 13 is better where the judgment attached to property with equity above the homestead exemption, where you are also behind on a mortgage and need to cure arrears over time, where your income is too high for Chapter 7, or where the judgment is a domestic property settlement under § 523(a)(15), which is dischargeable in Chapter 13 but not Chapter 7. Chapter 13 also permits avoidance of judicial liens through the plan and lets you pay any nonexempt portion over three to five years rather than surrendering assets.

What to Do the Week a Judgment Is Entered

1. Get the case file. Pull the index number, the judgment amount, the date of entry, and the county of docketing from the court's records. The docketing date starts the § 547 clock.
2. Move exempt income out of the line of fire. Social Security, SSI, VA benefits, public assistance, unemployment, workers' compensation, child support, and 90% of most wages are exempt under CPLR 5205, but a frozen account is frozen regardless until the exemption is claimed. Do not let exempt deposits sit in the same account as other funds.
3. Do not sign a new payment agreement or make a large payment on the judgment before getting advice; a payment can be an avoidable preference and a stipulation can waive defenses.
4. Do not withdraw retirement money to satisfy the judgment. Those funds are protected in bankruptcy and lose that protection the moment they leave the account.
5. Respond to information subpoenas or have counsel do so — ignoring them creates contempt exposure that bankruptcy does not cleanly resolve.
6. Count your assets and your other debts. If this judgment is the first of several collection suits, filing once resolves all of them; a piecemeal fight resolves none. See defending a debt collection lawsuit in NYC.

Frequently Asked Questions

The judgment was entered last week. Is it too late to file bankruptcy?

No — and the timing is favorable. The debt remains dischargeable, and because the judgment is less than 90 days old, any lien it created and any money already collected are within the preference window of 11 U.S.C. § 547 and can often be undone.

Will bankruptcy remove the judgment from my credit report?

Judgments have not appeared on consumer credit reports from the national bureaus since 2017, but they remain public record and show in title searches and some background checks. The discharge, the § 522(f) avoidance order, and a Debtor and Creditor Law § 150 order are what clear the public record.

My bank account is frozen right now. What happens to the money?

Filing triggers the automatic stay, which stops the creditor from completing the seizure. Funds still held by the bank and not yet turned over are generally recoverable; funds already released to the creditor within 90 days of filing can usually be recovered as a preference. Speed determines the outcome.

There are two judgment creditors and only one has a lien on my house. Does filing help both problems?

Yes. One case discharges the personal liability on every dischargeable judgment listed, and a § 522(f) motion in that same case removes the judicial lien to the extent it impairs your homestead exemption.

The judgment is against my business, and I personally guaranteed it. Am I protected?

A personal bankruptcy discharges your guarantee liability but does not protect the business entity or its assets. Whether the company also needs to file — or simply wind down — depends on its assets and remaining obligations.

What if the creditor keeps collecting after I file?

That is a stay violation. Send the creditor and its attorney the case number immediately; § 362(k) provides for actual damages, attorney's fees, and potentially punitive damages, and bankruptcy judges in both New York districts enforce it.

You can contact the Law Offices of Albert Goodwin by phone at 212-233-1233 or by email at [email protected].