Many people dealing with debt try to do their best to take control of the situation. It is relatively common for those with medical debts or high credit card balances to work on their household budgets or take on second jobs in their attempts to improve their finances.
Unfortunately, creditors may not necessarily give people the credit they deserve for their efforts. In fact, they may decide that payments have not been timely or large enough and might decide to take legal action against a debtor by suing them.
A creditor lawsuit can result in liens against personal property. Creditors can also sometimes garnish the wages of individuals who have fallen significantly behind on their financial obligations. For those served with lawsuit paperwork by a creditor, filing for personal bankruptcy might be the best option available.
How bankruptcy helps when facing a lawsuit
When a creditor takes legal action, they have a good chance of prevailing in civil court. Debt-related lawsuits tend to favor creditors, as debtors and borrowers have often made verifiable financial commitments that they later struggle to fulfill.
The courts generally do not care about the reason that an individual has fallen behind on their obligations so much as they do the technicalities of the debt. Provided that the debt is valid, creditors are likely to win when they take legal action against debtors. The debtor is then vulnerable to asset liens and wage garnishment. The judgment can also become a significant blemish on their credit report.
Instead of planning to go to court and risking an unfavorable outcome, debtors facing litigation may need to instead take action to prevent the lawsuit from going to trial. When an individual files for personal bankruptcy, the courts typically issue an automatic stay.
All pending collection activity ends until the courts lift the automatic stay. The automatic stay granted during a bankruptcy filing usually results in the courts dismissing any pending creditor lawsuits. The debtor can potentially eliminate the debt and the possibility of a future lawsuit with the discharge granted at the end of the bankruptcy process.
A successful creditor lawsuit can substantially worsen an individual’s finances by depriving them of assets or income. Choosing to file for bankruptcy can help those struggling with debt avoid a judgment and the financial consequences it could cause.