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To Her Credit

Sally Herigstad is a certified public accountant and the author of “Help! I Can’t Pay My Bills: Surviving a Financial Crisis” (St. Martin’s Press, 2006). Ask a question. To Her Credit archive

Dear To Her Credit,
I need advice and I need it fast. I had a civil judgment against me in October 2001. The statute of limitations where I live is 10 years, so I’m almost there. The judgment creditor has not taken any action to collect in the past eight years, and now out of the blue, I get a letter from him to contact him about the debt or he will “garnish my wages.” I’m in total shock after he did not do anything for eight years!

I do not have any property or car, just a small bank account and some IRA and 401(k) savings. What can I do to keep him from garnishing my wages? This judgment fell through the cracks when I filed for bankruptcy several years ago, because the attorney did not include it in the bankruptcy filing. Please help! I’m losing sleep over this.  — Chelsea

Dear Chelsea,
You should sleep better tonight.  I’m happy to report that a Chapter 7 bankruptcy wipes out debts even if they are inadvertently left off the filing.

Collections and judgment enforcement attorney Joshua P. Friedman explains: “Bankruptcy is a federal issue. The 9th circuit (which includes California and several other Western region states) deems that if the bankruptcy was a Chapter 7 no asset bankruptcy, even if the debtor forgot to include one creditor, the debt is deemed discharged [written off] regardless.”

The fact that your attorney missed the debt didn’t affect your bankruptcy one way or another. “The debtor had no assets, so why does it really matter which creditors are listed?” says Friedman. In fact, the only difference it makes is that this creditor cannot be penalized for violating the bankruptcy automatic stay because he wasn’t notified about it.

That means the creditor can’t come after your wages. Whew!

Your IRA, 401(k) and any other retirement plans would be safe regardless. That’s one of the big advantages of retirement plans — under ordinary circumstances, creditors can’t touch them.

Just because you don’t owe this debt doesn’t mean you can ignore it, however. Write to the creditor immediately and explain the situation to him. That should be the last you hear from him.

It sounds like you were hoping the statute of limitations would work in your favor and the debt would just go away. Many people try that — and sometimes it works. Looking back, the wait-and-see method causes you too much stress! If you’re sleepless over this debt now, how many times over the past eight years have you awakened in the middle of the night and thought about it — hoping they had forgotten about you, but wondering if and how they would come after you again?

Another reason not to let old debts linger is that while many people watch the calendar hoping for the statute of limitations to pass, only to be in for a rude shock when they discover the creditor was doing the same thing. It’s no coincidence the creditor tried to collect or reactivate your debt shortly before the deadline — perhaps hoping enough time had gone by that you were back on your feet. We can’t blame them for trying. Were it not for the bankruptcy, they probably would have succeeded, and you may have lost up to 25 percent of your paycheck to garnishment!

You’re off the hook this time. From now on, try to clear up debts as soon as possible or come to an agreement with your creditors. Get help from a credit counselor sooner rather than later if you need it. Life is too short to spend tossing and turning and worrying about debts.

To Her Credit answers a question about a debt or credit issue from a CreditCards.com reader each week. Send your question to Sally.

Published: April 30, 2010

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