If you do not repay a debt according to the terms of your agreement or contract with a creditor, the creditor may elect to sue you for the debt in civil court. If you receive a summons for a civil suit and cannot provide a valid defense, such as proof that you have paid the debt, the court will issue a judgment against you. In most states, this allows the creditor to pursue garnishment of your wages and assets. However, you may file bankruptcy after receiving notice of a creditor lawsuit.
Bankruptcy Process
In most cases, a bankruptcy filing is made through an attorney who specializes in bankruptcy cases. The attorney will collect information about your assets, income and debts, including any debt involved in a civil lawsuit. The attorney will then file a petition with the bankruptcy court. After the attorney files a bankruptcy petition, you will be required to attend a creditor meeting, where you must disclose financial information under oath. Unless a creditor can raise a valid objection to the bankruptcy filing, the court will discharge your debts.
Effect on Lawsuits
A bankruptcy filing will typically suspend any legal proceedings for the recovery of debt. If the court has already awarded a judgment to the creditor, a bankruptcy will discharge the debt, except for defaulted student loan debts and unpaid child support. If the judgment creditor has executed a wage garnishment to recover a judgment debt, the bankruptcy discharge will end the garnishment order, preventing the creditor from taking a portion of your future wages to apply to your debt.
Liens
Although judgment debts are typically dischargeable in bankruptcy, a lien placed by a judgment creditor on personal property may survive a bankruptcy discharge. A lien is a possessory interest that a judgment creditor holds on real estate or other personal property. This means that the creditor may benefit from the liquidation of nonexempt assets as part of a bankruptcy filing. However, liens on exempt property as determined by federal bankruptcy laws are typically terminated by bankruptcy.
Considerations
When considering a bankruptcy filing, you should consider all of your debts, rather than filing bankruptcy to avoid a judgment or garnishment order for a single debt. If your other debts are current, the credit damage and potential liquidation of personal property may be more detrimental to your finances than a single judgment.
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