If you're facing a debt collection lawsuit, it can be challenging to find ways to stop it. One option is to convince the other party to dismiss the case, but this is often difficult. Fortunately, filing for bankruptcy can put an immediate halt to the lawsuit. As soon as you file for bankruptcy, you should file a Suggestion of Bankruptcy to notify your creditor that you have taken this step.
Bankruptcy can be a useful tool for stopping a debt collection lawsuit in its tracks. By declaring bankruptcy, you can put a temporary hold on all legal proceedings against you, including the lawsuit. This can provide some much-needed breathing room and give you time to work out a plan to manage your debt. However, it's essential to note that bankruptcy has long-term consequences and should only be considered after careful consideration of all options.
How Does a Suggestion of Bankruptcy Work?
Before considering bankruptcy as an option, it's important to understand the mechanics of the bankruptcy automatic stay.
The automatic stay is a powerful tool that comes into effect as soon as a bankruptcy petition is filed. It immediately stops most creditors from taking any further action to collect debts from the debtor.
While the automatic stay is in place, creditors are prohibited from calling, sending letters, or taking any legal action against the debtor. This gives the debtor time to reorganize or liquidate their assets and make a plan to repay their debts.
However, it's important to note that the automatic stay doesn't apply to all types of debt. Some debts, such as child support payments, tax debts, and criminal fines, are not affected by the automatic stay.
Before deciding to file for bankruptcy, it's important to consult with a qualified bankruptcy attorney to determine if it's the right choice for your financial situation.
The Bankruptcy Automatic Stay Protects Your Assets
When you file for bankruptcy under Chapter 7 or Chapter 13, the 11. U.S.C. §362 imposes an automatic stay on most civil actions that seek payment of a debt. This means that any lawsuits filed against you by creditors or debt collectors for unpaid debts must be temporarily paused. The automatic stay protects your property and income from being seized by creditors or the court to repay your debts. This stay applies in most cases, and creditors cannot continue a lawsuit or take any steps to collect a debt without seeking permission from the bankruptcy court. The automatic stay remains in effect until you complete your bankruptcy case, unless the bankruptcy judge modifies it.
Once you complete your Chapter 7 or Chapter 13 case, the bankruptcy court will issue an Order of Discharge. This discharge order is a permanent injunction that prohibits creditors from taking any actions to collect a discharged debt. Most unsecured debts, such as medical bills, credit cards, personal loans, and old rent or lease payments, are discharged in bankruptcy. Additionally, some old income tax debts could be eligible for discharge, and some Chapter 7 debtors might discharge student loan debt if they meet specific requirements for discharging student loans.
However, domestic support obligations such as child support and alimony are not dischargeable. Most debts owed to the government are also not dischargeable. You can discharge secured debt, but you would need to surrender the collateral to get rid of the debt.
Overall, filing for bankruptcy can help you discharge most of your debts and provide temporary relief from creditor lawsuits and debt collection activities. However, certain types of debts are not dischargeable, and filing for bankruptcy may have long-term consequences on your credit score and financial future. It's important to consult with a bankruptcy attorney to understand the benefits and challenges of filing for bankruptcy and explore other debt relief options.
How Does the Suggestion of Bankruptcy Work?
If you have filed for bankruptcy relief, you can notify the civil court by submitting a suggestion of bankruptcy form. This form is applicable for both Chapter 13 and Chapter 7 bankruptcy cases. It is important to note that filing a suggestion of bankruptcy does not dismiss the civil court action, but it does pause the action. Any scheduled trials or hearings related to the case are canceled.
Although all creditors receive notice of the bankruptcy filing from the bankruptcy court, it is still recommended to file a suggestion of bankruptcy with the court. You need to file this form with the court where the civil action is pending and serve it on all parties involved in the action, including their attorneys of record.
It is possible that creditors may not take action to pause the lawsuit even after receiving notice of the bankruptcy filing. By filing a suggestion of bankruptcy, you can ensure that the civil court is immediately aware of the bankruptcy filing.
A Lawsuit Could Continue Without You After You File a Suggestion of Bankruptcy
It's worth noting that even if a suggestion of bankruptcy is filed, a lawsuit may still proceed against other defendants. The civil case is halted, but the plaintiff can request that the court allow the lawsuit to continue against the other parties being sued.
If the request is granted, you may be summoned as a witness in court, but you won't be held responsible for the outcome of the case unless there's an order lifting the stay or unusual circumstances arise.
However, there's an exception for co-debtors. If you file for Chapter 13 bankruptcy and the debt is consumer debt, co-debtors are protected by the automatic stay. Nonetheless, if the Chapter 13 plan doesn't fully repay the debt, the creditor can ask the bankruptcy court to modify the co-debtor stay. For more information on Chapter 13 repayment plans, check out this resource.
What Should I Do if I Am Sued for a Debt I Cannot Pay?
Getting served with a lawsuit can be stressful, but ignoring it is not the solution. You need to read the Summons to determine the deadline for filing a response or answer, which is usually up to 30 days depending on state law. Once you know your options, you can take the necessary steps:
- Pay the debt – You can contact the creditor's attorney to arrange to pay the debt.
- Negotiate a payment – You can contact the creditor's attorney to ask if they are willing to accept a payment plan or negotiate a settlement for a lower amount.
- Respond to the lawsuit – If you don't believe you owe the debt or the information in the complaint is incorrect, you can contact a lawyer to fight the lawsuit. But remember, time is of the essence, and you need to act quickly to avoid missing the deadline to respond.
- Do not respond – Ignoring a lawsuit typically results in a personal judgment against you. The creditor asks the court for a default judgment, and the court enters a judgment against you stating you owe the debt.
- File bankruptcy – Filing for bankruptcy stops the lawsuit. If the debt is dischargeable, the lawsuit cannot go forward, and the debt is discharged when you complete your bankruptcy case.
If the creditor receives a judgment against you, they may petition the court for additional relief, such as wage garnishment or selling your assets to satisfy the debt. However, you could get rid of the debt by filing for bankruptcy. Chapter 7 and Chapter 13 discharges most personal judgments.