Debtor goes Bankrupt during Enforcement

August 10, 2023


Q: What if my debtor goes bankrupt while you are enforcing my judgment?

A: The Judgment Enforcer (JE) will almost certainly let you know if the debtor files for bankruptcy. Neither JudgmentBuy or most JEs are lawyers – but we all know that filing bankruptcy means no creditor or JE can do anything without first getting the permission of the bankruptcy court.

If the debtor is really poor – JEs give up as nothing can be done. If the judgment debtor’s bankruptcy attempt is successful – it’s over. (If you request, the JE will likely return the now worthless judgment back to you.)

If the debtor has assets – the JE will likely file a creditor’s claim (which means they may eventually collect something.) If the debtor has lots of assets or is a fraud (and the judgment is big) – the JE may decide to attempt court actions to recover money on the judgment. (This is not easy or cheap.) If a creditor petitions the bankruptcy court to re-open the bankruptcy case and cannot prove assets were hidden or omitted, they are probably going to have to pay for the debtor’s attorney bill.

There have been cases where a judgment debtor got their bankruptcy petition approved, but never put a certain bank account of theirs on their bankruptcy schedules – and a judgment creditor levied on it because they had a prior lien on their personal property. The debtor’s lawyer challenged him but the BK court ruled at least a few cases, that it was abandoned property not part of the bankruptcy estate. This is risky, as some judge or trustee might charge the creditor with violating the debtor’s BK stay and charge them huge sanctions.

JEs always consider bankruptcy when enforcing judgments. Especially if a debtor communicates with them – JEs do not push them into bankruptcy. Once in a while forcing a debtor to file for bankruptcy both makes sense and is a last resort.

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