A creditor lawsuit can result in many major consequences. First and foremost, the civil case becomes part of the public record. Other people may learn about an individual’s financial struggles because they face a lawsuit.
Beyond that, there are the consequences of a judgment. A successful creditor lawsuit can result in a creditor securing a lien against an individual’s property or possibly garnishing their wages. The lawsuit can significantly worsen already difficult financial circumstances. People who have recently received service with paperwork for a creditor lawsuit may want to consider filing for personal bankruptcy.
How can bankruptcy help people resolve creditor lawsuits?
By delaying the case
Creditor lawsuits often lead to unfavorable outcomes for the debtors. Even when people have compelling explanations for why they failed to fulfill their financial obligations, the courts are unlikely to give much weight to their claims. The most important considerations are the validity of the debt and the recent payment history of the debtor.
It is quite common for the courts to rule in favor of creditors when people have fallen behind on payments. Those who are unlikely to win in court can prevent the case from going to trial. By filing for bankruptcy, people can receive automatic stays. The courts notify the credit bureaus of the pending bankruptcy. Creditors have to stop calling and sending letters. They typically also have to dismiss any pending lawsuits.
By facilitating compromise
In cases where people pursue Chapter 13 bankruptcy, they have to establish a repayment plan. They negotiate an arrangement with their creditors and make monthly payments through the courts. It may be possible to modify financial obligations in a way that makes them more manageable during bankruptcy. Debts included in a repayment plan may be eligible for a discharge at the end of the bankruptcy. Any remaining balance due may be subject to discharge after the completion of a Chapter 13 repayment plan.
With either type of bankruptcy, the ability to eliminate financial pressure and delay court cases can be critical for those facing aggressive collection efforts. Recognizing that personal bankruptcy can help those facing creditor lawsuits can make a major difference for people dealing with temporary financial hardship.
