Can Bankruptcy Help After a Creditor Has Filed a Lawsuit?

Bankruptcy Timing

Timing in bankruptcy is very important. A bankruptcy attorney can help you determine the best time to file, but even if you don’t file at the ideal time, there are still ways that bankruptcy can help you. This is true even if creditors or debt collectors have taken drastic action against you.

Ideally, you’ll begin researching your options and choose to file for bankruptcy before a lender files a lawsuit against you, but the truth is many people do not act until they receive the notification of the lawsuit. In some cases, a borrower’s wages have already been garnished before they decide to file.

The truth is filing for bankruptcy has benefits no matter how long you wait to file, but it’s best not to wait until you are financially overwhelmed before moving forward.

What should you know about filing for bankruptcy after a creditor files a lawsuit against you?

Difference between Threatening to File and Filing a Lawsuit

Many creditors send you a notification stating they intend to file a lawsuit against you and in many cases, this notification might seem misleading. You might assume legal action has begun and jump to conclusions about filing for bankruptcy.

Depending on your situation, if a single creditor simply threatens a lawsuit, it’s probably best not to move forward with bankruptcy just yet. There might be a way to work out a payment plan with the creditor or settle the debt for less than the total amount owed.

However, if legal action has officially begun and/or your financial situation is such that there is no way you could afford to pay anything on the debt, it might be best to consider bankruptcy.

Eliminating a Debt in Bankruptcy

One of the primary benefits of bankruptcy is its ability to eliminate some or all of your debt. This is the case whether a lawsuit has been filed or not. Some debts are non-dischargeable, but assuming the debt in question is eligible for discharge, you can eliminate it even if the creditor has been granted a judgment and is currently collecting on the debt. As a matter of fact, those collection efforts must immediately stop once you file.

For more information about dischargeable vs. non-dischargeable debts, check out this information.

Debts vs. Liens

Keep in mind that some debts are also liens, which complicates your situation a bit more. Liens transfer ownership and rights of personal property to the creditor. Liens are granted after a creditor wins a judgment. Despite there being a lien, an experienced bankruptcy attorney can fight it and potentially get some of your property returned to you. Every case is different and it’s important to share as much information as possible with your bankruptcy attorney so he or she can advise you on how to proceed.

The worst thing you can do if a creditor is threatening legal action or has taken legal action against you is to ignore the situation. The less you do the more power the creditor gains, regardless of where you are in the process.

If you are facing legal action related to your debts or you have questions about whether or not bankruptcy would be beneficial in your situation, we can help. Contact the Law Office of Robert M. Geller at (813) 254-5696 to schedule a free bankruptcy consultation to discuss your case.