Due to the negative consequences that follow a bankruptcy, debtors should consider this legal proceeding as a last resort. But if you are constantly being harassed by creditors or if you have an impending lawsuit for non-payment of debt, filing bankruptcy can help.
What is Bankruptcy?
Bankruptcy can conjure up thoughts of people who irresponsibly acquire excess loans and credit card debt. Quite the contrary, bankruptcy can serve as protection for people who deal with credit or financial issues due to circumstances beyond their control. Excessive medical debt and bills that pile after a job loss may play a role in bankruptcy, which is legal proceeding that can erase or eliminate outstanding debts.
Lawsuits and Bankruptcy
Filing a bankruptcy petition can work to your advantage if creditors threaten or file a lawsuit against you for non-payment of funds. Filing for bankruptcy induces an automatic stay, which protects you against creditors until the bankruptcy hearing. With this automatic stay in place, creditors cannot contact you by telephone or letter to resolve debts, nor can they sue for non-payment of debts or send your account to collections.
Notification
Filing bankruptcy requires that you provide a list of all debts and the names of creditors included in the bankruptcy proceeding. Upon receipt of this information, the court sends notification of the bankruptcy to each individual creditor. However, a creditor may pursue a debt or file a lawsuit against a debtor prior to receiving notification of the bankruptcy. In this case, the debtors can notify the creditor of the automatic stay and bankruptcy, which stops lawsuits.
Consequences of Bankruptcy
A bankruptcy can devastate your credit score. And with this information in mind, borrowers who risk being sued for a past debt should seriously consider repaying the debt to the creditor and avoiding a bankruptcy filing. A bankruptcy can tarnish credit reports for 10 years. This can prevent mortgage approvals or trigger higher interest rates on auto loans and credit cards. Rather than face a creditor in court, debtors can discuss payment options and work to set up an installment plan to repay the debt.
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