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It is easier to avoid a creditor judgment than to remove it later

On Behalf of | Apr 27, 2022 | Bankruptcy |

When someone sues you, the courts might award them a judgment. You could be subject to judgments for numerous reasons, but unmet financial obligations are a common source of personal judgments.

A creditor can take you to court for an unpaid debt and use your payment history to convince the courts to issue a judgment against you, possibly leading to a garnishment of your wages. Losing a portion of your income when you already have a hard time balancing your budget can be a major blow.

Those struggling financially may eventually turn to bankruptcy to regain control over their budgets. If creditors have started actively pursuing you or filed a lawsuit against you, filing bankruptcy before they get a judgment may be a better option than waiting to file.

Bankruptcy doesn’t discharge judgments

The problem with waiting until after a creditor takes you to court is that a standard Chapter 7 bankruptcy filing will not eliminate the judgment against you with a discharge. It is a much better approach to avoid a judgment by filing bankruptcy at the right time rather than waiting until after a loss in civil court.

Once a lender files a lawsuit, you have a brief window of time in which to respond. Filing for bankruptcy may be the best possible response to any creditor lawsuit if you do not have the assets to pay the debt in full immediately or proof that you do not owe the debt.

The automatic stay can dismiss the lawsuit

As soon as you file for bankruptcy, the courts grant you an automatic stay that will stop collection activity until you go back to court or your creditors request a special hearing. The automatic stay can lead to the dismissal of pending debt-related lawsuits against you. Your creditor will not be able to get a judgment, and you may even be able to discharge the debt. That way, they will not be able to try to take you to court again in the future.

Understanding how personal bankruptcy protects you and what debts you can discharge can help you retain control over your finances and avoid the long-term financial damage frequently associated with creditor judgments.