One may seek methods of settlement, bankruptcy, or asset protection arrangements in order not to pay a civil judgment. We shall now move on to discuss certain strategies and specific legal tools available for navigating or avoiding paying a civil judgment.
What Is a Civil Judgment?
The civil judgment refers to a judgment by the court that orders one party to pay another, which is most commonly caused by some form of lawsuit filed. Civil judgments result from unpaid debts, breach of contract, personal injury cases, among others.
Upon the court rendering a judgment, it legally authorizes the creditor in collecting the debt through different means, including but not limited to wage garnishment, property liens, or bank account levies.
Civil judgments may bring on long-lasting effects, such as damaging your credit score and possibly highly aggressive collection methods.
The best way to understand how one may be able to minimize or avoid such an outcome is by knowing the legal ways available to circumvent paying a civil judgment.
Legal Ways to Avoid Paying a Civil Judgment
Negotiate a Settlement
Many times, negotiating a settlement with the creditor will allow one to pay less than the full judgment.
Creditors may favor one-time, lump-sum settlements to long, extensive collection efforts. You can benefit by offering reduced lump-sum or extended payments. You are negotiating a reduced payment to settle the debt now so you avoid going through wage garnishment or asset seizure.
To start the negotiation, it is better for the debtor to call the creditor or his attorney to negotiate with them. Therein, the debtor needs to be clear about their financial condition and should be ready to make a sufficient settlement. The debtor may indicate that they cannot pay the entire amount while showing eagerness to settle the debt.
Bankruptcy Filing
Bankruptcy can discharge some civil judgments but not all.
Among the most powerful means of eliminating or, rather, considerably decreasing a number of types of civil judgments, there is filing bankruptcy.
Bankruptcy under Chapter 7 allows discharging unsecured debts such as credit card debt and medical bills. On the other hand, bankruptcy under Chapter 13 allows restructuring and paying off in installments over some length of time.
Certain judgments cannot be discharged, however, such as those against fraud or willful injury.
When one declares bankruptcy, the court carries out an automatic stay on most collections, including wage garnishment and bank levies. It is very important to understand which debts can be discharged by this process beforehand because bankruptcy won't erase every judgment that may arise.
Set Up an Asset Protection Trust
By setting up an asset protection trust, your assets will be protected from future civil judgments.
An asset protection trust will afford your wealth protection from creditors. In case these trusts are set up properly, they put your assets out of the reach of civil judgments by providing strong protection. States such as Nevada and Delaware have stringent protection laws, so it would be excellent to create Domestic Asset Protection Trusts or DAPTs.
It is absolutely important to create these trusts long before a civil judgment may be entered. A court that finds the trust was created to avoid a specific creditor can be considered a fraudulent conveyance and therefore invalidated.
Appeal the Judgment
If you think the judgment was issued in a manner that is not fair, appealing has the impact of reversing or diminishing it.
You can appeal a judgment entered based upon incorrect information or some legal error. Ordinarily, an appeal is a request to a higher court that a decision be reviewed for errors of law or for procedural errors. An appeal will often delay enforcement of the judgment but you must have substantial legal reasons for the appeal.
Appeals are costly and take a great deal of time. However, they may bring an ideal result if the original case left many serious errors. Any case must consider seeking a lawyer to review an original case beforehand.
Appeal the Decision
Filing a motion to vacate judgment may get it overturned.
Similarly, if you did not receive due notice of the lawsuit or feel the judgment was entered incorrectly, you might contest it by filing a motion to vacate.
This could void your judgment once you prove that you did not get due process legal notice or that the creditor cut corners with procedure.
How to Protect Assets from Civil Judgments
Homestead Exemption
Protect a portion of your home's equity with a homestead exemption.
Most states have a homestead exemption that protects a certain amount of money in your home's value from creditors. A homestead exemption can protect your main residence from being sold to satisfy a judgment.
How much equity is protected varies from state to state, but some states, like Florida and Texas, provide unlimited homestead protection.
If you are trying to shield your residence from creditors, you will need to know about your state's homestead exemption rules. In some states, the exemption is automatic, while in other states you file papers with the court to claim it.
Transferring Ownership of Assets
Transferring assets to someone else, or another company or trust, might work, but timing is everything.
One can protect their property by vesting title in a family member, other businessman, or some other legal entity altogether. However, the fraudulent transfer statutes discourage one from taking their property out of their control solely for the purpose of making oneself judgment-proof.
If the court believes that such a transfer has occurred for the express purpose of attempting to avoid a civil judgment, then it will set aside that transaction.
Transfers that could be considered fraudulent transactions should be done many years beforehand of any potential litigation. The establishment of trusts, business entities, and gifting assets many years prior to any judgment being a potential risk can make an asset exempt from seizure.
Exempt Wages and Income
Certain types of income are exempt from garnishment.
By definition, not every type of income is subject to creditor garnishment. Federal law excludes Social Security benefits, disability payments, and some types of pensions from seizure in satisfaction of a judgment. It's important to understand which incomes are protected so as to protect your vital means of sustenance.
Most states also have their own exemption laws that protect income types and personal property from creditors. The exemptions may include personal items such as clothes, tools of trade, or a motor vehicle to some value limit.
Practical Steps to Limit the Impact of the Damages on Civil Judgments
Consider a Payment Plan
One could make a payment plan through which one can avoid aggressive collection actions.
One may not, in entirety, avoid paying the civil judgment, but one can work out a plan for paying to satisfy the debt over time. This approach avoids the more aggressive methods of collection, which include wage garnishment or property liens, and allows one to pay the debt in comfortable installments.
Many creditors accept payment plans because they create a predictable income stream. It is important that the payments be reasonable so that failing to make the payments will result in renewed collection efforts.
Make a Lump-Sum Settlement
A one-time payment typically means settling for less.
If you have liquid funds, a lump-sum settlement is attractive to most judgment creditors. This approach works best if you have a substantial percentage of the judgment to be satisfied immediately.
Creditors will generally accept less than the total amount of judgment favorably than immediate satisfaction.
Avoid Fraudulent Transfers
Do not even try to transfer assets. It may serve only to heighten the adversity.
Trying to hide assets in an attempt to avoid paying a civil judgment often backfires. Fraudulent transfer laws enable creditors to unwind transactions executed to protect assets from collection.
The courts look very unfavorably on debtors who attempt to shirk their financial responsibilities, and getting caught could lead to other fines and penalties.
Knowing Judgment-Proof Status
Becoming Judgment-Proof
If you don't have important assets or income, then creditors will likely not be able to collect.
The term judgment-proof simply means you have no enough assets or income for creditors to take.
This would generally include people with low-income, no valued property, or whose income is protected from garnishment. Even with a judgment, there is nothing the creditors can collect from you.
Being judgment-proof does not make the debt vanish into thin air. The creditor can still file the judgment, which will remain on your record for a certain number of years and could affect your credit.
If the debtor's financial situation improves, then the creditor could try enforcing the judgment in the future.
Statute of Limitations on Judgments
Civil judgments do expire, but how long they take depends on the state.
Civil judgments do expire after a certain period of time, generally a statute of limitations that ranges between 10-20 years depending on which state it is in. If the statute of limitations runs out then the creditor cannot collect upon that judgment anymore unless they renew that judgment.
Knowing what the time limits are in your state might save you from paying older judgments.
Tips for Future Asset Protection
Proactive Financial Planning
Proper financial planning can protect your wealth from judgments that might arise in the future.
One of the most effective ways of escaping civil judgments that may arise later on is to be able to engage in proactive financial planning. This may involve the creation of trusts, correct titling of assets, and structuring estates in such a manner that offers maximum protection in case of any legal suit.
Work with a financial planner or attorney to provide a comprehensive plan that protects your wealth, business interests, and personal property.
Obey the Law
Do not do anything that could be considered a fraudulent transfer.
Ensure your asset protection strategies are in conformance with applicable state and federal laws. Transfers made after a lawsuit is filed, or where it is reasonably foreseeable that one will be filed, can be deemed fraudulent against creditors. The key to sound legal strategy is to plan ahead.
Seek Legal Advice
Since judgments can sometimes be fairly complex, an attorney's services may be helpful.
Whatever the case of pending civil judgment, this is good and enough reason to seek a lawyer's consultation. The lawyers are going to be in a position to explain possible ways of dealing with the problem that is facing you, such as negotiation with creditors, appeal of judgment, and declaration of bankruptcy.
They can also assist in creating protective legal entities like trusts or business entities with an effort to shield your assets from any future claims.
Conclusion
The rule of thumb is that avoiding the payment of a civil judgment is fully achieved by understanding one's legal rights and undertaking strategic financial planning.
You may have options to negotiate a settlement, appeal the judgment, or create asset protection trusts to minimize financial liability stemming from a judgment, or prevent its collection altogether.
There are ways to protect your assets, but you must move quickly and take professional advice where needed, keeping at all times the letter of the law in mind. You will avoid the most devastating financial setbacks related to a civil judgment if you are proactive and well-informed.
