Debtors are commonly filing for bankruptcy after they have received a notice of a lawsuit from their creditors. Debtors should consider bankruptcy and act quickly if their creditors are filing a lawsuit against them. When creditors are tired of waiting for payment they will usually file a lawsuit for a judgment against the debtor so that they may establish liens and claim property that you own to pay off your debt. If your creditor is moving with a lawsuit, as a result of your inability to pay off the debt, you should consider filing for bankruptcy immediately. The only other time you should consider filing for bankruptcy after a lawsuit is if the lawsuit will dictate whether you should file for bankruptcy or not.
Once creditors pursue a lawsuit against the debtor it becomes more difficult for the debtor to maintain their property after a judgment has been placed. For this reason, creditors receive an advantage over people who choose not to consider or file for bankruptcy. If you are facing a lawsuit you will find relief from the bankruptcy stay clause in the Bankruptcy Code which establishes protection against any debt collecting activities including lawsuits.
Depending on the facts of your case including your state law and the types of debts you owe, you may be capable of protecting your assets if you file for bankruptcy before your property and assets are repossessed by a lawsuit judgment. Filing for bankruptcy may relieve your financial stress by providing repayment options that include low monthly payments while having some of your debt discharged. If you are filing for a Chapter 7 bankruptcy and you find that all of your debt is dischargeable, you will enjoy a fresh start with no obligations for repayment.
Lawsuits can take place if your creditor is persistent and has reason to believe that you are filing for bankruptcy in bad faith. If that is the case, the creditor will need to provide enough proof to lift a bankruptcy stay. In addition, creditors may still pursue a lawsuit if they can prove that your property was bought with credit that was protected by a liens clause. Liens on your property mean that your property is un-cleared and if sold, some or all of the winnings will go to pay off the creditor.
If you are facing a lawsuit after a bankruptcy or you are filing a lawsuit against a person or company that has filed for bankruptcy, you may find valuable information in the following section. In any case, if you are facing a lawsuit prior or after a bankruptcy court has discharged your debt, you are advised to consult with a local attorney who is capable of guiding your case. Attorneys can help remove liens from your property and can help file your exempt property so that you maintain the most after a bankruptcy. If you need assistance or legal representation in a court of law, please contact the San Diego Bankruptcy Attorney at 619-488-6168.
Our qualified team is ready to guide your case and protect all of your assets using the fullest extent of the law. Do not wait until the end of a judgment lawsuit to consider filing for bankruptcy. If you have waited too long, you can still qualify for bankruptcy and have the existing debt discharged.
Creditors Pursuing Lawsuits
Creditors may choose to pursue a lawsuit if the debtor fails to provide payment for a long period of time. If you are notified that a lawsuit is being filed against you, you need to act quickly before entering a courtroom. In certain cases, it may be in your best interest to have your case moved into a bankruptcy court. Once moved to a bankruptcy court, creditors are unable to pursue any debt collecting activity against the debtor. The ‘automatic stay’ also called the ‘bankruptcy stay’ establishes that any debt collection action is illegal after the debtor has filed for bankruptcy.
Creditors are unable to pursue a lawsuit against debt that is dischargeable, however, the law defines the following as non-dischargeable debt that cannot be cleared by bankruptcy:
- Child support and spousal support debts
- Debts arising from any criminal activity
- Debts that are owed to the government relating to taxes, court costs, and other fines
- Student loan debts
In some cases, the creditor may also be able to prove that you are filing for bankruptcy in bad faith and that you have the capacity to pay back the debt. The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) has established more rights and protections for creditors who seek repayment. Under the BAPCPA, debtors face more complications if they file for Chapter 7 while maintaining a higher than average annual income. Creditors can have the Chapter 7 bankruptcy case moved to a Chapter 13 bankruptcy where the debtor will be required to establish a 3-5 year repayment program. In Chapter 13 the creditor also has more options regarding the types of debts that can be discharged. Under BAPCPA, creditors have also been able to lift automatic stays allowing them to pursue payment after a bankruptcy is filed. In addition, creditor liens are protected more so now under BAPCPA when a debtor is filing for Chapter 7.
If the debtor is facing a lawsuit, there are debts are dischargeable and that cannot be pursued by a creditor unless the creditor objects to the bankruptcy and provides proof of filing a bankruptcy in bad faith. The following are examples of dischargeable debts that are protected from any debt collecting activity after they have been successfully discharged in a bankruptcy court.
- Most payday loans: payday loans come with substantially high tax rates. You should never consider a payday loan if you are using it to pay off other debt. Some payday loans are not dischargeable.
- Installment fees or payments on transportation vehicles including cars and motorcycles
- Debts that you owe to your business: all debt can be discharged if the proprietary owner of the business files for bankruptcy. However, you may encounter lawsuits if your company is a corporation or an LLC with multiple shares. Debts that belong to LLC’s and big companies cannot be discharged. As a shareholder, you may have debt transferred to you if your company fails to execute a proper repayment program. If you have substantial debt transferred to your account, you are capable of filing a Chapter 7 bankruptcy.
- Credit cards: when you file for bankruptcy the purpose is to find a method of payment. Since credit cards hold no real value - unlike the mortgage of your house - credit card companies usually receive no payment in Chapter 7 cases.
- Mortgage payments
These debts cannot be pursued in a lawsuit after they have been discharged. Once discharged in a court of law the creditor must accept the outcome meaning that the debtor is free of any financial obligations. In short, the automatic stay prevents the creditor from:
- Initiating or advancing a lawsuit against a debtor
- Taking any action to claim the debtor's property
- Taking any action that modifies a lien on the debtor's property
The automatic stay or bankruptcy stay, protect the debtor while they file for bankruptcy. On the other hand, under the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005, creditors have a new found form of protection that takes away certain rights that existed to the debtor under the Bankruptcy Reform Act of 1978. The BAPCPA substantially amended the bankruptcy code to provide creditors with protection against people filing for bankruptcy in bad faith or committing some form of fraud. Nevertheless, the debtor has enough protection that promises economic relief regardless of the debtor's situation. If you find yourself in a lawsuit before or after a bankruptcy filing it is essential to have qualified representation in a court of law. Failing to use the legal avenues to protect your property may result in loss of property and assets. Bankruptcy law allows individuals to keep some or all of their property while providing repayment options for individuals who do not qualify for a Chapter 7 liquidation.
When creditors pursue a lawsuit against their debtors it is because they know their actions are protected by the law or because they were unaware of the automatic stay. Under BAPCPA, the debtor is required to notify their creditors of their bankruptcy case and of their protection under the bankruptcy stay. Creditors are capable of filing a complaint where they can prevent any debt from being discharged.
If you are being pursued by a creditor with a lawsuit, it is important to understand that there are many laws that protect individuals from actions that would cause an undue hardship. Your creditors can only pursue a lawsuit if they can prove that you are committing some form of fraud. Keep in mind that anyone can file a lawsuit so long as they can pay to have it processed. Finding yourself in a lawsuit while you are filing for bankruptcy can be a stressful ordeal. Our attorneys believe that an honest person should not be bullied by creditors while they are filing for bankruptcy. Contact a local attorney to learn about your rights and to learn how to protect your assets in the event of a bankruptcy lawsuit.
Individuals Pursuing Lawsuit Against Company That Has Filed A Lawsuit
Like companies that pursue individuals for payment, individuals who pursue companies in a bankruptcy trial must respect the bankruptcy stay laws that protect individuals or other entities under Bankruptcy Code. Under any bankruptcy code, whether the company is filing through Chapter 7, Chapter 11, or Chapter 13, they are protected from any debt collecting activity under the automatic stay clause. If you continue any debt collecting activities after you are notified of the company’s bankruptcy, you may face lawsuits arising from the violation of the bankruptcy stay.
Filing for a motion to lift the bankruptcy stay is a procedure that requires enough proof of fraudulence. If the creditor, in this case, the person filing against the company, believes that the company is acting in bad faith, the creditor will need to prove that the company is acting in bad faith in a bankruptcy court. Once the creditor is able to prove that the company is abusing the bankruptcy code, they will be granted a permission to lift the stay. In court cases, the creditor can receive compensation after the debtor has filed a Chapter 13 repayment program. Keep in mind that when a company or a person files for bankruptcy most debt is cleared. Creditors in many cases find no return on their investments and are unable to pursue payments after the debt has been discharged in a bankruptcy court of law.
Filing a bankruptcy can become a complicated ordeal that takes into account assets, properties, state procedures, debt types, filing procedures, economic affairs, and other ordeals. When a lawsuit is present there is no doubt that you need legal representation. If a creditor is pursuing a lawsuit it is because they want control over your property. Once they receive a verdict that allows them to claim your property there is little you can do to prevent them from keeping your property. As soon as you receive notice of a lawsuit you need legal representation and guidance so that you keep most of your property after a bankruptcy.
When filing a lawsuit during a bankruptcy or if you are being pursued by a lawsuit, there are certain rights that exist to protect both parties. Bankruptcy is not an easy situation, but it does not have to be complicated. Both parties are encouraged to have legal representation so that a lawful agreement can be reached. If you are considering bankruptcy and you find yourself in the middle of a lawsuit contact the San Diego Bankruptcy Attorneys at 619-488-6168. Our attorneys are capable of protecting your assets and properties to the fullest extent of the law. Filing for bankruptcy is a hard decision, don’t let lawsuits prevent you from considering the benefits of filing for bankruptcy.
Bankruptcy is not for everyone and it is important to keep in mind that every situation is different depending on various factors. If you are considering bankruptcy have a legal representative guide your case so that you avoid making any financial mistakes.