Bankruptcy on Judgment

Q: We thought we had good business liability insurance but when my husband’s helper failed to bring a box of books back into a home and they were ruined from rain, we were sued for $5000 and our insurance company said that was an extra endorsement that we didn’t have on our policy and refused to cover it. The homeowner’s insurance paid the claim and then they came after us. My husband made a payment arrangement out of distress because the lawyer was sending letters stating that he would have my husband’s driver’s license revoked. We made payments on it for over a year at $150 per month but then the economy tanked, my husband’s work greatly diminished, he started having serious health issues that now take up every last dime we have, he went on disability,and we have almost lost our home three times in the past couple of years. Paying on this unreasonable debt to us was not our first priority. Since then the lawyer has filed a judgment against my husband. We were not served any papers, he just filed it at the court house based on the conditions that he had signed the payment agreement to. We are in serious debt right now and very scared over this judgment. We are looking into bankruptcy as our only option left. Would bankruptcy remove this judgment? We live in North Carolina.

Additional information
Edit for additional information: We are currently caught up on our house but consistently have to pay late. My husband’s name is on the mortgage but I am on the deed and other documents as well. We own our automobiles, both worth less than $5000. We also had an automobile that was repossessed last year. There isn’t any other property or insurance policies. I am also a student and have managed my education with pell grants so far.

A: The short answer to your question is that filing a Chapter 7 bankruptcy would most likely eliminate your obligation to pay the $5000. Filing a Chapter 7 bankruptcy would also allow you to discharge any credit card debt that may have accumulated as your monthly income started to decrease.

However, if you are behind on your house at the time of filing a Chapter 7 bankruptcy, you may lose your house.

Another bankruptcy option that you may want to consider is a Chapter 13 bankruptcy. Chapter 13 bankruptcy allows you to pay back a portion to all of your debt over a 3-5 year period based upon your level of income. The benefit of filing a chapter 13 is that you are able to catch up on any back house payments through the payment plan so that you do not lose your house in the bankruptcy.

* You and I do not have an attorney-client relationship formed by our communications on this website. Advice given by me on this website is general advice based on partial information. You should not rely on any advice given without first hiring a lawyer in the area where the case is pending, and providing that lawyer with full information.

Answered by Candace E. Kallen, Mesa AZ Bankruptcy Attorney.
Re-Posted from AVVO Legal Questions and Answers.