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A creditor lawsuit could inspire someone to file for bankruptcy

On Behalf of | Mar 28, 2023 | Bankruptcy

The timing of when someone files for bankruptcy can be the result of careful planning. Someone who knows they need to file for bankruptcy will often stop using their credit cards for several weeks beforehand so that creditors can’t try to limit the extent of their discharge. Those who pick a specific time to file often make other smart moves to reduce their chance of challenges or extra expenses during the bankruptcy process as well.

However, not everyone has the luxury of filing at the best possible time. Some people need to file bankruptcy very quickly in response to a creditor lawsuit, as personal bankruptcy is often one of the best options for those who are facing debt-related legal action.

What happens when creditors sue a debtor?

Opening the door to a process server might mean that someone is at risk of having a lien placed on their personal property or a creditor garnish their wages. Such debt-related lawsuits rarely work out in favor of the person who owes money unless the creditor did something inappropriate. Thankfully, bankruptcy can help someone respond appropriately to a pending creditor lawsuit.

Bankruptcy terminates collection activity. The day that someone files their initial bankruptcy paperwork with the courts, they receive an automatic stay. Creditors have to cease collection activity until the courts have an opportunity the filing. Not only does that mean that companies can’t call and send anxiety-inducing letters anymore, but it also typically means that the courts will dismiss any pending lawsuits related to debt until after the resolution of the bankruptcy filing.

If the debt that led to the lawsuit is an unsecured debt, a successful bankruptcy will likely result in its discharge, which means that the creditor won’t be able to pursue litigation again after the end of the bankruptcy process.

Bankruptcy is a viable option for those struggling with debt

Learning more about how personal bankruptcy helps people handle aggressive collection efforts can help them to potentially take advantage of the opportunity to file proactively rather than waiting for things to spiral out of control. Speaking with an experienced attorney can help to achieve this goal.

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The Law Office of Kim Covington, is a woman owned debt relief agency, and I have helped families, individuals and small businesses, file for bankruptcy relief under the U.S. Bankruptcy Code, for over 24 years.