If you are facing a lawsuit from a creditor or collections agency, there are three common responses: filing a timely answer to their complaint, negotiating a settlement before your answer is due or filing for bankruptcy. Whatever the case, you need to respond in some way or risk being hit with a default judgment by the courts without taking the opportunity to dispute claims. Many people believe they cannot file for bankruptcy if they are being sued by a creditor, but collections lawsuits are a frequent cause of bankruptcy cases across the country.
What happens to your lawsuit when you file for bankruptcy?
When you file in bankruptcy court, an automatic stay comes into play. This prevents your creditors from collecting any debt from you until a judgment is made on your claim. Collections agencies have to stop calling you, garnishments and threats of foreclosure come to an end and any creditor’s lawsuit has to be shelved.
Filing for bankruptcy before being sued
If the debt you’re being sued over is the only debt you carry, it may be better to file an answer. Unfortunately, you will still be subjected to court and legal fees that will probably result in a higher overall cost than filing for chapter 7. If you have many outstanding debts and several looming lawsuits, filing for bankruptcy may be the best move. You will still be subject to filing and other legal fees, but once they’re paid you will have removed the vast majority of your debt at once.
Filing for bankruptcy with a judgement already against you
If you already have a judgement against you in a lawsuit, your treatment by the bankruptcy court will not be affected. You still get the automatic stay to prevent any attempts to execute your judgment, and what you owe in your lawsuit counts as unsecured debt that can be discharged.
If you are currently being sued by a debtor or anticipate a case being filed in the future, you should contact a Las Vegas bankruptcy attorney to see if filing for bankruptcy is the right option for you. For more information, contact DeLuca & Associates at (702) 252-4673 for a free consultation.
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