Fraud Judgments

In general, fraud-based judgments are stronger than regular judgments when the judgment debtor files for bankruptcy protection. However, fraud judgments are not invincible, and default fraud judgments are still only default judgments. My articles are my opinions, and not legal advice. I am a judgment broker, and am not a lawyer. If you ever need any legal advice or a strategy to use, please contact a lawyer.

Most judgments, and almost all non-fraud judgments are discharged (voided) when a debtor discharges their debts in a bankruptcy court. As soon as the debtor files for bankruptcy protection, they get an automatic stay. All creditors, even those with fraud judgments, must immediately stop all collection activities until they get permission in writing from the bankruptcy court that they may proceed.

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When a debt gets discharged, it is game over and the creditor will not be paid. The bankruptcy court assumes most debts are dischargeable. However, there are exceptions that can be claimed by a creditor, which may result in a bankruptcy court declaring that a particular debt is non-dischargeable.

While most debts get discharged when a debtor successfully discharges them in bankruptcy, there are some debts that cannot easily be discharged, if they are brought to the attention of the bankruptcy court. When it is proven that the debt was the result of fraud, willful and malicious injury, embezzlement, larceny, or a marriage settlement agreement or divorce decree, the bankruptcy court will usually determine and make an order that those types of debts are non-dischargeable.

In theory, a judgment for fraud, especially one that highlights and proves most or all of the red flag badges of fraud (classifications of types of wrongdoing), is bankruptcy proof; however that bankruptcy immunity is not automatic or cheap. When a debtor files for bankruptcy protection, the creditor must then bring their fraud judgment to the attention of the bankruptcy court.

If the fraud judgment is a default, the bankruptcy court will likely require a prove-up hearing and a motion for a new summary fraud judgment. Re-proving fraud and the expense of hiring a lawyer is all the responsibility of the creditor.

For a bankruptcy judge to order that a money judgment is non-dischargeable, the creditor must file a formal objection to their debt getting discharged. If the creditor proves that the basis for their judgment was for one of the general misconduct exceptions, the bankruptcy court will usually declare the debt to be non-dischargeable. When that happens, the automatic stay is lifted and the creditor is then free to use every legal method to recover their judgment, while most or all of the other creditors lose, because their debts were discharged.

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