Once a court has issued a judgement against you, your settlement options become much more limited. Not only does the settlement provide legal confirmation that the debt is owed, it also offers the creditor options to compel payment by requesting a lien against your bank account or garnishment of your wages. In most cases, getting that judgement set aside is difficult or impossible. But that doesn t mean you don t have some room to lower the amount you ll have to pay, particularly if your debt is one that can be discharged in bankruptcy.
Even after winning a judgement, a creditor has incentive to negotiate. A judgement leaves the creditor in a good position, but not an insurmountable one. Even with a judgement, the creditor still may have a time-consuming process to collect, particularly if you don t have much in the way of assets to seize. A creditor may be worried that you ll lose your job because of excessive debt or collection action before your wages can be garnished. In addition, placing a lien on property doesn t always mean a creditor can seize it — many state laws protect against seizing homes or property to pay an unsecured debt.
Some judgements can be voided by declaring Chapter 7 bankruptcy, but not all. If your judgement is for student loans, child support, delinquent taxes or other non-dischargable debts, bankruptcy will be less of a threat and settlement is far less likely.
However, unsecured debt may be discharged in a Chapter 7 bankruptcy filing, even after a judgement has been issued. If the creditor has managed to put a lien on your home or property, you may be able to have it removed through lien avoidance if you didn t agree to it as part of a settlement. Filing for Chapter 13 presents a similar risk to the judgement holder, because a deficiency judgement still is considered an unsecured debt. Particularly if the creditor hasn t yet secured a lien on your property, it is looking at receiving only a portion of the amount owed, with the rest discharged at the end of the bankruptcy process.
Because of this, tell your creditor that you re considering filing for bankruptcy. Doing this increases the risk that it will have gone through all of the effort to secure the judgement without getting a return on that investment; as such, it s a threat that will get the creditor s attention.
You re unlikely to get the kind of deal that you would if you were negotiating a debt prior to the judgement being issued, but you still may be able to settle for less than you owe. If you have enough cash-on-hand for a lump-sum settlement, that s more attractive than a payment plan, especially if you ve already mentioned bankruptcy. Start off with a number low enough that you can negotiate it upwards and still have enough to pay the final amount. Once you ve agreed on a total, have the creditor agree in writing that the debt has been satisfied in full and no further collection action will be taken.