If you just received notice of entry of judgment, you may feel a bead of sweat form on the back of your neck. What to do now…
Let’s start at square one:
What Is a Notice of Entry of Judgment?
When you receive notice that a judgment has been entered against you, it means a party previously filed a lawsuit against you (which you may or may not have known about) and has ultimately obtained a “judgment” from the court. The judgment is basically an order of the court, usually indicating a specific amount you owe to the plaintiff, along with accruing interest and other costs. The judgment may have been obtained “by default,” which means you did not formally respond to the lawsuit through a filing with the court. The judgment may also been obtained after you attempted to fight the lawsuit, but lost. Either way, the court has now authorized the creditor to collect the judgment amount from you.
Collecting on that Judgment
After a party obtains a judgment, this judgment creditor will attempt to collect sufficient funds to pay of the judgment amount (plus the costs of collection). Having obtained the judgment permits the creditor to seize or sell your assets and/or your income. This requires the creditor to pursue additional legal procedures, but can frequently result in the following collection activity:
- Garnishing your wages (i.e. seizing a portion of your income, if received via wages);
- Selling your real property (usually via a mechanism called a “sheriff’s sale”);
- Seizing (called “levying”) on funds held in your bank accounts; or
- Obtaining a separate court order which then requires you to appear and answer questions about your assets (under CA law, this is called an Order of Examination). This process is designed to facilitate the creditor in identifying and liquidating your assets.
What to Do After a Default Judgment is Entered
If the judgment was obtained against you “by default,” then you may be able to have the judgment overturned if, for example, you were not properly served with notice of the lawsuit. However, achieving this will still ultimately require you to defend the actual lawsuit. If you already had the opportunity to defend, or if you waited too long to challenge the default judgment, then you may be stuck owing judgment obligation. If you defended the lawsuit, but lost anyway, appealing the ruling is also an option.
If appealing is not an option, and there is no way out of the judgment, then you will need to decide your next course of action. Your options can include:
1. Consensual Plan. Arriving at a consensual payment plan with the creditor to make either a complete or partial payment on the judgment debt (the creditor may be willing to work with you, but don’t hold your breath);
2. Bankruptcy. Consider bankruptcy, as an option for wiping out (i.e. discharging) all, or a portion of the judgment debt. An additional benefit to bankruptcy is that the judgment creditor is preventing from taking collection action without specific authorization from the court; or
3. Ignore. Ignoring the judgment, which usually causes the judgment creditor to pursue one or more of the collection actions described above, until paid in full (this is not an ideal course of action).
There is one key lesson to take away from all of this – if you’ve received a Notice of Entry of Judgment, your worst course of action, is really to do nothing. It is a mistake to think a judgment creditor will simply go away after it has spent time and money to obtain a judgment. The sooner you take action, the more likely you can limit the damage when the judgment creditor comes to collect. And if bankruptcy is a good option, you may actually be able to discharge the entire judgment debt.