Can Filing For Bankruptcy Stop A Creditor Lawsuit
When a debtor fails to pay their debts, a creditor has several available options that can help them collect their money. For example, a creditor can write a letter requesting payment or forward a debtor’s information to a debt collection agency. While most creditors choose “self-help” remedies and collection agencies, a civil lawsuit is one of the most effective tools that creditors have. By filing a lawsuit, a creditor could obtain a judgment against the debtor. Usually, a judgment results in a judicial lien against a debtor’s real property.
If you have been served with a lawsuit, it is crucial for you to know that you have options. For example, you can defend against a creditor lawsuit or file for bankruptcy. In order make a proper determination of your legal options, you need consult an attorney with experience in bankruptyc law as well as defending creditor lawsuits. Before considering filing for bankruptcy, you need to speak to a qualified bankruptcy attorney who can help you understand the pros and cons of filing for bankruptcy.
In Pennsylvania, a creditor or debt collector can file a lawsuit against you if you get behind in your payments. If, for example, you are sued in a state or federal court, it is crucial that you file a written response within twenty days. Failure to do anything will lead to you losing automatically and a default judgment being entered against you. If you lose a lawsuit, a judgment will be entered against you, stating that you owe a creditor a certain amount of money. On top of what you contractually owe a creditor, you could need to pay additional fees if a judgment is entered against you.
Bankruptcy and Creditor Lawsuits
If a creditor has initiated a lawsuit against you, and you don’t have strong defenses to use in court, filing for bankruptcy might be your best option. Filing for bankruptcy can help you stop a creditor lawsuit. When a debtor files for bankruptcy, an order known as the automatic stay goes into effect by operation of federal bankruptcy law. The automatic stay bars creditors from continuing with any collection activity, including trying to win a judgment in a creditor lawsuit. As long as a creditor has not obtained a judgment against you, filing for bankruptcy will stop the proceedings, no matter how far your case has progressed.
Some of the most common creditor lawsuits bankruptcy can stop include lawsuits involving;
- money sought for a breach of contract
- a credit card balance
- a home foreclosure
- compensation for a personal injury case
- a financial dispute between business partners
Which Chapter Do You Need to File To Stop a Lawsuit?
Both a Chapter 7 and Chapter 13 bankruptcy can stop a creditor lawsuit. Nevertheless, the type of debts you have will influence the chapter of bankruptcy you file. For example, if a creditor filed a lawsuit against you because of a secured loan, such as a mortgage, you might be better off filing a Chapter 13 bankruptcy, especially if you want to keep your home. On the other hand, if a creditor filed a lawsuit against you because of an unsecured loan like a credit card, you might be better off filing a Chapter 7 bankruptcy, especially because credit card debts are easily dischargeable in Chapter 7 bankruptcy.
Contact a Pennsylvania Bankruptcy Attorney for Help
Has a creditor filed a lawsuit against you? If so, contact an experienced Lehighton & Carbon County bankruptcy attorney at 570-818-4888 to determine what steps to take. If bankruptcy is not suited for your situation, we can help you evaluate your other options.