Legal Question in Business Law in California

You could likely discharge the amount in Bankruptcy court. He could lien your house only after he gets a judgment against you. But even the lien could be discharged in BK court. Even without the interest on the loan, you could be charged interest on the judgment.

Doubtful that your wife's salary could be garnished, since it is not her debt, and is not a community debt.

The other attorney is right on point here. If you don't want to ultimately file for bankruptcy, try to work something out with your creditor. These work outs are very common in the current economic environment. Consult with a good business attorney in your area for specific advice.

Kevin B. Murphy, B.S., M.B.A., J.D. - Mr. Franchise

Franchise Attorney

The other attorneys are correct. I would add that if you don't qualify for bankruptcy, or have other reasons not to go there, whether the creditor would be entitled to pre-judgment interest would depend on whether or not the loan had a due on default provision. If not, interest before judgment would accrue on the unpaid installments but not the entire balance. They are correct, however, that once they have a judgment, it will accrue interest. They are also correct that once they have a judgment, they can record an abstract of judgment, which acts as a lien against any real property you own in any county in which they record it. They can also then file for a writ of execution to have the house sold to satisfy the judgment. It is likely that they could also get a pre-judgment writ of attachment that would prevent you from selling your house without paying them. As for garnishing your new wife's wages, they would not legally be allowed to do that. They could, however, garnish your accounts that her wages are deposited into, up to your 1/2 community property interest in the accounts. The exception would be if she kept totally separate financial accounts and her pay went there.

Everyone has urged you to file bankruptcy without answering your questions, which are several.

1. He can sue on the promissory note, under a cause of action for breach of contract. The statute of limitations is four (4) years, if the instrument was in writing. The statute runs from your breach, not the date the promissory note was drafted.

2. If he gets a judgment, he can record an abstract of judgment in the county where you own property, which will perfect a judgment lien on your property. In certain situations, he can also have the property sold at an execution sale, to satisfy the judgment. In that situation, however, the note is not considered secured. A secured note is a note that is secured by a deed of trust, a mortgage, an equitable mortgage, or some other form of pledge.

3. Although the note does not contain interest terms, he would be entitled to collect prejudgment interest from the date of your breach. He would also be able to collect interest on the judgment. The current legal rate of interest is 10%.

4. Although you executed the note while you were single, community property can be liable for one spouse's separate property debt incurred before marriage. Your wife can protect her earnings by having them deposited into a bank account that is in her name, and for which you do not have any rights to withdraw from.