NJ Bankruptcy Court Says State Court Default Judgment For Fraud Not Binding
Assume the following scenario: A client consults with a NJ bankruptcy lawyer about filing a bankruptcy case. During the course of their initial meeting, the client discloses that one of his largest creditors recently filed a lawsuit in the Superior Court of New Jersey (“NJ Court”) accusing him of engaging in fraud, and that he failed to respond to the lawsuit which resulted in the Court entering a judgment by default (or default judgment) against him for $200,000 predicated on fraud.. “How does this default judgment affect my bankruptcy case?,” the client asks the lawyer. The lawyer explains that while bankruptcy will discharge or wipe out most unsecured debts that the Bankruptcy Code provides a remedy for creditors to challenge the discharge of a particular debt grounded in fraud. To secure an exception to discharge, the Bankruptcy Code requires the creditor to file a separate lawsuit (called an adversary proceeding) in the Bankruptcy Court challenging the di