Got a debt collection lawsuit before your bankruptcy is filed?

Household Debt 11Jun09
Image by eric731 via Flickr

Because of the automatic stay, a bankruptcy filing normally stops all lawsuits against you. But for a myriad of reasons, not everyone who is planning to file for bankruptcy can do so right away. If you fall into this category, you especially need to keep an eye on your mailbox for lawsuits so that you can respond to them.

Because if you’ve been sued by a debt collector or creditor for a debt and you are planning to file for Chapter 7 bankruptcy, you should defend against the lawsuit, unless you are planning to file the bankruptcy sooner than they can get a judgment against you.

Why respond to lawsuits? Because it slows them down. Debt collectors and creditors count on a large percentage of the lawsuits they file going unanswered. And when a lawsuit goes unanswered, they can get a judgment against you and possibly (depending on what state you live in) collect on that judgment, which may mean taking money from your bank account or garnishing wages.

Dealing with judgments is just a lot of extra hassle you don’t need when you are on the verge of a bankruptcy. Also, judgments stay on your credit report for a long time.

So don’t just ignore a lawsuit. Talk to an attorney about it. If you’re not working with an attorney, check out the court’s website to see if there are any instructions for responding to lawsuits. Go to the courthouse and speak with a court clerk. Many courts have ways of helping out people who are representing themselves.

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