A common question I get asked a lot by people from New York City, Manhattan, Brooklyn, Queens and the Bronx is how bankruptcy can be used to wipe out a New York judgment. A judgment in New York is good for 10 years and can be renewed for another 10 years. The judgment can be enforced during this period. Interest accrues on a judgment at 9% per year. So for every $1,000 face amount of judgment every year another $900 gets added in. A creditor with a judgment can garnish the judgment debtor’s (i.e., person who owes the judgment’s) wages, attach his/her bank account, put a lien on his/her house or any real estate, and seek to seize and sell his/her car or other assets.
A judgment also appears on the credit report of the person owing the judgment for 7 years and will have a negative effect on his/her credit standing.
Once a judgment debtor files personal bankruptcy any attachment of the debtor’s bank account must be released by the judgment creditor.
A personal bankruptcy filing will wipe out a debtor’s personal liability for a judgment. There is an exception for very limited categories of debts that are automatically excepted from discharge, but depending on the amount of the judgment a chapter 13 bankruptcy can still be used to pay off the judgment over time.
In addition, if a judgment has been recorded with the County Clerk in a county where the judgment debtor owns real estate, the lien will not get automatically wiped out in bankruptcy. However, depending on the circumstances the debtor may be able to avoid the lien in the bankruptcy.