I am not a lawyer, I am a Judgment Broker. This is my opinion and a summary of what I have learned and observed. If you need legal advice, contact a lawyer (See our National Lawyer State Bar List). (Especially for bankruptcy issues.)

Bankruptcy (BK) is a set of federal laws. These laws allow (and sometimes help force) debtors to petition and be declared (judged) insolvent. This means the debtor owes more than they have the ability to repay, and bankruptcy gives the debtor a fresh start, with relief of most or all of their debts.

In BK, Any (known and non-exempt) property of the debtor is turned over to a BK Trustee. After court proceedings and hearings, the Trustee distributes shares of the debtor’s non-exempt assets (if any) to the debtor’s creditors.

The most important thing a declaration (an attempt) of bankruptcy does is to create an automatic stay. The automatic stay stops all creditors from all attempts to collect from the debtor. (At least until the creditor gets permission from the court to resume collection from the debtor.)

One needs to be very clear about the nature of the underlying (debtor) debts and when they arose. See 11 USC 362 – covers the subject of the automatic stay. See 11 USC 101(5) – The definition of a “claim” is very broad. The term “claim” means:

(A) right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured; or

(B) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured.

The most important thing a successful bankruptcy does is discharging (wiping out) most or all of the debtor’s debts (including most judgments). In most places, if the debtor files for a “No Asset” bankruptcy, all their debts and judgments are wiped out, even if the debtor did not list you as a creditor.

I am not a lawyer, however I know that not being listed in the judgment debtor’s BK schedules, is not the same thing as a debt being incurred after the bankruptcy finalization (post-bankruptcy). The date the original debt was incurred is critical, not the judgment date.

Can you sue the debtor after they their bankruptcy proceeding has concluded? Only if the cause of action occurs after they concluded their bankruptcy. For example, if someone does not pay you what they owe in January 2014, and they file for bankruptcy protection in January 2015, and their case is concluded in July 2015, you cannot sue them for their January 2014 debt. (But you can sue them for debts originating later than August 2015.)

It does not matter how you learn about the filing of bankruptcy of your debtor. You must immediately stop all collection actions – and also undo any recent collection actions you have started. As an example, if you were levying the wages of your debtor, and then learned they filed for bankruptcy. You must inform the sheriff (and employer) to stop the current wage levy. Also, there is no harm sending in your proof of claim when you learn of the bankruptcy, even before the court says you should. It is best to supply proof of the BK and your claim.

Any ORAP lien (a silent lien, in certain States, created by a judgment debtor examination you started by personally serving the debtor) is “tolled” during the period of the bankruptcy. Do not forget to file the “Notice of Stay of Proceedings” (In California: a Judicial Council form CM-180) in the State court (so they will know it is tolled, and so the will not drop the matter from calendar) and attach a copy of the Bankruptcy Clerk’s “Notice of Commencement of a Bankruptcy Proceeding.”) You can print out a copy of the notice from PACER. It’s usually a two-page item (plus however many pages the list of creditors is from the debtor’s creditor matrix), and listed as docket # 4 or 5.

I am not a lawyer, and most advice I have read is that once a judgment debtor files for bankruptcy protection; while the bankruptcy is ongoing in court, everyone who took or got money from the debtor, including the Sheriff, should always send it to the bankruptcy trustee if they request it. See Carlsen, 63 B.R. 706, 710-11 (Bankr. C.D. Cal. 1986) “Action on the part of the creditor is required not only to halt the continuation of the garnishment, but to turn over to the trustee sums that it received from the garnishee.”

However, this does not seem to always apply in a Chapter 7 bankruptcy. With a Chapter 7 bankruptcy, fax the Sheriff instructions to halt the garnishment with a copy of the notice of the BK. Do not send instructions telling them to release levied money to anyone. The Sheriff will then hold onto the funds pending the outcome of the BK and/or a request from the BK Trustee for release. Then, send the trustee a letter telling him/her there is a levy/garnishment and that there are levied funds and that you have stayed all enforcement efforts, and that the ball is in their court. Many times the Trustee will not order the Sheriff to release the funds, and when the bankruptcy is finished, you might get the funds, however in all BKs, the decision is up to the Trustee.

If you got a JL-1 UCC lien 90 days ago, that might make you a secured creditor. However, most of the time creditors do not get a lot of money, and there is a chance the Trustee will file a motion to avoid your lien. If this happens, consider stipulating to what the Trustee wants.

Another problem with bankruptcy, is that even if the cause of action was after the filing date of the bankruptcy case, that does not guarantee you that the new debt from the cause of action will not be included in the bankruptcy case. Understand what your liens are, and the powers they give you. Do not get too confident, or you may wind up in a fire-fight that might be totally unnecessary if you had taken the right actions.

In a chapter 11 or 13 BK, the debtor himself and/or their lawyer does have the right to demand the funds back, and if you do not comply, you are in trouble. In Chapter 7, levied funds are the property of the estate, it is up to the Trustee to tell Sheriff to release them. Not up to the debtor.

The 90-day preference rule in BK is enforced, and any debtor assets seized prior to 90 days must be released. It is the Trustee’s responsibility to request the return of assets obtained during the 90 days prior to the BK petition being filed. In a Chapter 7 bankruptcy, neither the judgment debtor or their lawyer can demand the assets be return to them. 11USC§ 547 (b)(4)(A). It may be difficult when you are intimidated, however, there is no law that says you must return money to a judgment debtor or the judgment debtor’s attorney just because they asked for it back. Only if the BK Trustee asks you, do you have to give it back.

Of course, there is a minimum dollar amount ($600) for the assets being in the hands of the creditor, that must be met before the preference can be enacted by the Trustee. Example, if you have garnished thee judgment debtor’s bank account, and received $550, 80 days before the judgment debtor filed BK, then your money is (probably) safe from a “preference” action.

There is a $600 limit on consumer BK and a $5,850 limit on a business BK. The amount the creditor has received must exceed those amounts for it to be in the reach of the BK Trustee. 11USC § 547 (c)(8) and (c)(9).

Some creditors do not automatically return anything obtained in the 90 days prior to the petition being filed. They monitor the case on PACER, and if they get a letter from the Trustee demanding the return of the money, they immediately comply.

The key is to immediately respond to the automatic stay regulations to avoid fines or worse. Of course, stop all your recovery actions, and notifying the civil court, (and if you are in the middle of a levy) the bank, and/or the debtor’s employer to stop all activity.

Another thing to be aware of is the take-back power a bankruptcy court can assert. An example is if a debtor pays you $10,000 – then (less than 90 days later) goes bankrupt. There is a chance the bankruptcy court will demand the $10,000 back from you. Often this is not fair, but this prevents one way a debtor can defraud the court.

Bankruptcy is serious, and kills most judgments. Some judgments are not killed, but you still must pay time and money to keep your judgment enforceable.

Most of the time the “cards are stacked” in the BK judgment debtor’s favor. Just one example is, in some cases, the debtor can choose any place in the USA to declare bankruptcy – even if it is only to make it more difficult for creditors. If you want to change the odds and outcome, you have to work hard or pay a lawyer a lot to “re-shuffle this unfair deck of cards”.

Most bankruptcies are because of honorable reasons, including loss of jobs, medical bills, etc. Some bankruptcies are for less honorable reasons, including avoiding paying judgments, as a delay tactic, to avoid paying for things, or instead of defending themselves in lawsuits.

There are three kinds of BK judgment debtors:

A) Those that are really broke.

B) Those that are hiding assets, but are pretending to be broke, to delay and frustrate creditors.

C) Those that are flagrantly abusing bankruptcy laws to play games such as serial filing (filing often, just to delay, knowing their bankruptcy will not be approved), or lying to the court about their financial situation. Once in a while the court throws the book at frauds, putting them in prison.

Note that in bankruptcy, a single member LLC is considered property of the individual debtors BK estate. See: Ashley Albright, U.S. Bankruptcy Court for the District of Colorado 291 B.R. 538 (Bk.D.Co., 2003 – Decided April 4, 2003) and Modanlo, 412 B.R. 715 (Bk.D.Md., 2006)

Unfortunately, simply pointing out hidden assets to the court sometimes results in the Trustee saying, “so what?”.

In Florida, I have seen a fraud judgment debtor claim a consistent $10,000 monthly cost of living, for years before a bankruptcy, without any proof or hints about where their income was coming from. When challenged, the debtor simply said “that’s why I went bankrupt”. The BK Trustee had no interest in discrepancies of cash flow on their paperwork.

When debtors are dishonest, such as in cases B and C above, it usually requires an expensive lawyer to convince the BK court that your Judgment should not be wiped out by the debtor’s bankruptcy. If you succeed, perhaps the debtor may only owe you, with all the other creditor’s debts being discharged.

A common misconception is that a judgment for fraud, is bankruptcy-proof. The truth is that most fraud judgments can be declared bankruptcy-proof only through expensive legal actions in BK court.

There are two kinds of situations:

A) The debtor is really poor, it is best to give up.

B) The debtor has assets (or hidden assets you can cause to be found), it might be worth fighting their bankruptcy, usually by hiring a lawyer.

You have two choices, you can pay attention, or not. If the debt owed you is less than $10,000 and/or the judgment debtor is poor, it is best to just let it go. However, you still may want to pay attention to the situation, in case the debtor’s bankruptcy filing does not succeed.

If the judgment debtor is not poor, then you should pay attention, and decide what to do. If you have a judgment for fraud, and the debtor has assets, you should pay close attention, and consider hiring a lawyer.

The cheapest and best way to pay attention to the judgment debtor’s bankruptcy situation is PACER. PACER is a Federal government court web site. You can find PACER with a simple web search. To use PACER, you must register with them. PACER is not free, but it is very cheap – 8 cents a page. This means when you click the details of the bankruptcy, it costs 8 cents per displayed page. The best way to find your debtor is by their social security number. Many creditors do not take the word of the debtor until their bankruptcy shows up on PACER. It should show up the very next day after they file for BK protection.

If it is a big Judgment you want to preserve the rights to enforce, you might want to click and save as a PDF, all the information about the debtor’s case from PACER. If it is a small judgment, or you want to check it less often, like once a week, just to click PACER’s Summary or Status pages.

There are many conclusions a BK court can come to, after a debtor files for bankruptcy. A common conclusion is a DISCHARGE – which means the debtor succeeds in discharging (wiping out) most or all of their debts and judgments. This is not good news for creditors.

Sometimes good conclusions (for the creditor) can happen in a bankruptcy. One good conclusion for the creditor is a DENIAL OF DISCHARGE – which means the debtor was caught lying, or has otherwise annoyed the court.

Another good conclusion for the creditor is a DISMISSAL – the court said no to the debtor. Perhaps the debtor was not entitled to bankruptcy protection, or made a mistake, or failed to perform what the court required. If the bankruptcy is dismissed, you have a green light to proceed with enforcement as if nothing ever happened. And, you can then pull the bankruptcy records and perhaps discover where your debtor banks or works, etc. A bonus is they cannot usually successfully refile for bankruptcy for 6 months.

PACER is the best way to look at the status and conclusions of a bankruptcy. If a bankruptcy is Denied or Dismissed, generally you are free to resume collections on the debtor. Sometimes if a bankruptcy is dismissed for reasons such as failing to file a form 23 – the certificate of completion of financial course, the debtor can later pay about $275 to re-open their bankruptcy case. Or, they can always file for bankruptcy again! See FRCP rules 60 (b and c). If you are in doubt, get legal advice.

There are four types of bankruptcy, known as Chapters:

Chapter 7: is most common form of bankruptcy, there are two types – Assets, and No-Asset. No-Asset is when the debtor claims and the court agrees, there are no assets to repay creditors. Unless you can prove fraud or hidden assets, No-Asset usually means give up, it’s over. Generally, Chapter 7 no-asset bankruptcy is when the debtor says I have nothing, please forgive me. However, keep track of the BK case using PACER, to check the final outcome of the bankruptcy.

Chapter 11: This is available to businesses when there are some assets available to pay debtors – a percentage of what is owed.

Chapter 12: This is for farmers.

Chapter 13: This is for the reorganization of the debtor’s debts. 13 is for people that say I have something, and I will make a plan to pay some creditors based on what is possible. Usually only priority and secured creditors are paid, sometimes pennies on the dollar. Chapter 13 is for debtors with income and assets, with a payment plan to partially repay some creditors over time, usually 3 to 5 years. Note that with a Chapter 13 bankruptcy filing, and until the repayment plan is approved; usually all interest accrual stops, and it shields co-debtors on the petitioner’s debts. If the debtor fails to make payments on their BK-13 court-ordered repayment plan, interest accrual resumes, and the co-debtor becomes liable again.

Does that mean that if there are 3 people on a judgment and one of them files for Chapter 13 then all proceedings against the other two must stop until the plan is accepted for the one? Yes, that is how it works, so unfair. Also, if a debtor fails to list a creditor in a Chapter 13 bankrupcty that can be good for the creditor. In Chapter 7, failing to list a creditor usually is no big deal.

If the judgment debtor files Chapter 13 and does not list you, the judgment, or the OJC (no mention of the judgment) then keep your head down and mouth shut. Do nothing to draw attention to the judgment or myself. Because, if the debtor completes the Chapter 13 plan and is discharged, then the judgment is still alive and recoverable. If debtor falls out of the Chapter 13 and gets dismissed, the judgment is still alive and recoverable. If the debtor does not include the judgment the in his plan and you bring attention to it, then the judgment gets added to the plan and perhaps you would get pennies on the dollar. So, on a Chapter 13, if you are not listed, always keep your mouth shut and wait to see what develops. Chapter 7 BK is a different creature.

Bankruptcy is serious, and PACER can be your friend. Even if you have to hire a lawyer, you can save money if you are familiar with PACER. A web site I am not affiliated with, but find useful bankruptcy information, is at www.MoranLaw.net.

The worst part of bankruptcy, is sometimes the Trustee and judge do not care about codes or case law, and will ignore previously secured liens to put the debtor’s property into the pot for the Trustee to earn a fee, and for the benefit of all the creditors.

If you record an abstract of judgment, but your debtor owns no property when they filed for bankruptcy protection, the discharge of the debtor’s debt wipes out your abstract.

Even if your recorded abstract of judgment attaches to a debtor’s home, if there is not enough equity in the property beyond the homestead exemption, it will not help you. For example, a property is worth 400K, the debtor owes 350K, and the homestead is 75K. There is no equity beyond the homestead, and the debtor’s attorney can move the bankruptcy court to “avoid” (remove) your lien.

Sometimes, especially when the debtor defrauded you and the court, you get a whole new (stronger) judgment from the bankruptcy court. If you get a new bankruptcy court judgment, your underlying state court judgment no longer applies. Since a bankruptcy court judgment is not dischargeable by bankruptcy, and can last for up to 20 years (except in places like Florida), bankruptcy court judgments can be very powerful.

You do not always have to file an adversary proceeding to win in bankruptcy court. First, if you record liens more than 90 days before your judgment debtor files for bankruptcy, you will probably be a secured creditor. This can be done with either or all of: a UCC lien, a real estate property lien, and or at least in California, a judgment debtor examination. Do not forget to file your claim as a secured creditor.

The Bankruptcy Code provides a debtor with several ways to exempt property from the bankruptcy estate and thus protect that property from distribution to creditors. See 11 U.S.C. 522(d). States can opt out of the federal exemption scheme, denying debtors the option of taking exemptions under 522(d), see 11 U.S.C. 522(b)(2). In 1984, the California legislature enacted California Civil Procedure Code (CCP) 703.130 and 703.140 and opted out of the federal exemptions scheme. See Talmadge v. Duck (In re Talmadge), 832 F.2d 1120, 1122 (9th Cir. 1987). “Pursuant to the authority of paragraph (1) of subsection (b) of Section 522 of Title 11 of the United States Code, the exemptions set forth in subsection (d) of Section 522 of Title 11 of the United States Code (Bankruptcy) are not authorized in this state”. So, California debtors filing for bankruptcy have two state-created sets of exemptions from which to choose: California Code of Civil Procedure 703.140 or 704.010.

If your debtor is dishonest or a fraud (and your judgment is big and you have money to fight the battle in BK court), promptly request tax returns and if you have any doubts, open up multiple 2004 exams if necessary. Put your judgment debtor’s financial situation under a microscope. Attend all of the 341 Meetings, and ask as many questions as the trustee will allow you to ask. (Some Trustees and courts will not allow questions (or just a few short questions) at the 341 meeting, instead one waits to open a 2004 exam. The deadline for filing any adversarial actions in bankruptcy court starts from the date of the first creditor’s meeting. There are circumstances you can realistically get the case dismissed if you follow the protocol.

When a fraudulent debtor’s bankruptcy shows up on PACER, perhaps file a Notice of Stay in the state court (in California, the PDF is at http://www.courts.ca.gov/documents/cm180.pdf) and then request tax returns in a bankruptcy motion, as per 11 U.S.C. 521(f) and F.R.B.P. Rule 4002(b)(4). In California, a served judgment debtor examination puts a one-year lien on all the debtor’s personal property, so do not forget to comb through their bankruptcy petition; and file a proof of claim on anything and everything you can see with any value at all.

If you have a valid causes of action, file an adversary proceeding (if you are before a fair BK judge). If the judge will not allow your motion, you will need to hire and attorney or file an interlocutory appeal before being allowed to proceed forward. In some fraud cases, bankruptcy court is your best chance of getting paid.