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Debt Lawsuit
Debt Lawsuit

Is Bankruptcy an Option When I'm Being Sued?

It Depends on Your Situation
If you have a lot debt that you cannot pay in addition to your credit card lawsuit, then you should consider your bankruptcy options. But if your financial house is in good order, and your credit card lawsuit is your only issue, then a bankruptcy might be too drastic a solution. The best way for you to find out which option is best is to talk to a licensed attorney in your area:




A successful Bankruptcy would not only stop the credit card lawsuit dead in its tracks, it would also clear away most of your other debts. It usually gets rid of credit cards, collections, old utility bills, judgments, repossessions, foreclosure deficiencies, and most other kinds of debts. There are exceptions however. A bankruptcy will not get rid of most taxes, student loans, or child support.

What is an example of a person who should file a Bankruptcy? Your credit card (or another creditor) has sued you because you could not pay them. You have another $20,000 in outstanding credit cards that you also cannot pay. You income is such that you will not be able to pay back these debts in a reasonable amount of time. You want to protect your paycheck, bank account, and home. You should talk to a bankruptcy attorney about your options.

What is an example of a person who should NOT file a Bankruptcy? You are current on all your bills except one credit card. You ignored this one credit card (or other creditor) because you could not pay it, and they would not work with you. You have a decent job and can pay all your bills except this one. If only you could get rid of this one, then you would be fine! But now they have sued you! Bankruptcy is probably too drastic at this point. Your better option is to talk to a lawyer who defends credit card lawsuits. They may be able to get the case dismissed, or settled on terms that you can easily afford.




What is Bankruptcy?
Bankruptcy is a legal proceeding designed to provide relief to people who are in debt. If you qualify for a bankruptcy, it can be a very powerful tool to help you get a "Fresh Start." Millions of Americans file bankruptcy every year and it has become much more common than it used to be.

In most bankruptcy cases, the person filing bankruptcy keeps all of their assets, and gets rid of most of their debts. The most common bankruptcy is Chapter 7 Bankruptcy, where a person quickly clears away their debts without paying them. Chapter 7 usually takes 3-5 months. Another common type of Bankruptcy is Chapter 13 Bankruptcy, where the person filing bankruptcy enters a court-administered payment plan to pay back some or all of their debts.

What Kind of Relief Does Bankruptcy Provide?
As soon as a Bankruptcy is filed, all collection efforts against the debtor (person filing bankruptcy) must stop immediately. This usually results in a great amount of stress relief for debtor, and many debtors report sleeping better the first night after their case is filed. Another important form of relief is that a Bankruptcy will stop a foreclosure or a repossession. A Chapter 7 will stop them temporarily, where a Chapter 13 will stop them permanently as long as you stick to the payment plan that the court confirms for you to get caught up.

The biggest form of relief is called the "Discharge." At the end of a Chapter 7, or a completed Chapter 13, the debtor usually receives a Discharge Order. This is a very powerful, federal court order that "Discharges" or permanently clears away the persons debts. It means that the persons debts are gone for good (with the exception of any new debts, or debts that cannot be discharged).




Chapter 7 Bankruptcy
Chapter 7 Bankruptcy is sometimes called "Straight Bankruptcy" and is the traditional concept of Bankruptcy. It is quick, and the debtor does not pay their debts. The debts are simply cleared away. The debtor has to complete two credit counseling courses which usually take about one hour each. They are not a big deal, and can usually be done on the phone or on the internet.

The debtor also has to go to a meeting in person called a "Meeting of Creditors." The name of this meeting is a little misleading because creditors usually do not show up. It is usually just the debtor, their attorney, and the trustee. The trustee runs the meeting, makes sure procedures are followed, and looks to see if the debtor has any non-exempt assets (most debtors do not). The debtor will have to answer a few simple questions about their financial situation. About 2 months after the Meeting of Creditors, the debtor will receive their discharge order, and can celebrate their Fresh Start.

Chapter 13 Bankruptcy
The other common type of personal bankruptcy is Chapter 13. Chapter 13 is filed for high income debtors (who do not qualify for Chapter 7 because they make too much money), or debtors who are trying to stop a foreclosure or repossession. In the case of a higher income debtor, the debtor must pay back as much debt as possible over a 3-5 year payment plan. At the end of the payment plan, any remaining debt is usually discharged.

In the case of someone trying to save their house or car, the Chapter 13 will stop the foreclosure or repossession, but the person must stick to the court payment plan to keep the house or car. In order to save a house, the debtor usually must make regular mortgage payments, plus an extra payment to catch up the arrearages. In the case of a car, sometimes the debt on a car can be "crammed down" so the debtor only has to pay back what the car is worth.

The downside to Chapter 13 is that it takes time. The benefit is that is stops all collection efforts (including collection lawsuits) while you are in the Chapter 13. The other upside is that it allows a person to "catch their breath" financially and give them a good faith opportunity to catch up on house and car payments.

Do I Lose Assets?
Most individuals and families that file for bankruptcy relief do not lose any assets. This is because exemption laws protect your assets from creditors. However, this question is why you must speak with an attorney before you decide to file a bankruptcy. If you file a bankruptcy incorrectly, or do not know what issues to look for, you could end up losing your house, car, bank accounts, or other assets in your bankruptcy. It is not worth the risk. Be smart and talk to a lawyer if you are considering bankruptcy.

Bankruptcy and Credit
Believe it or not, most people's credit scores go up after a bankruptcy. Why? Because the bad debts are removed and your score comes back up as you re-establish yourself. Certain credit card companies will offer you credit cards right away. These will be high interest credit cards, but you can use them to rebuild your credit (do not carry a balance from month to month).

You will also be able to qualify for financing on a vehicle after your bankruptcy as long as you have income, but the interest rate will be high until your score comes back up. At the time of this writing, you can qualify for a mortgage 2 years after a bankruptcy (as long as other conditions are met, such as income, down payment, etc.). The important fact to understand is that you will be able to get credit after a bankruptcy.

Talk to a Lawyer
If you are even considering a bankruptcy, you should talk to a lawyer in your area. You can get a free consultation, and they will tell you if a bankruptcy is a good idea or not. There is no substitute for legal advice from a professional attorney. The lawyer will want to know your income, expenses, assets, and debts. They will also want to know if you are facing any lawsuits. This information will allow them to look at your "financial picture" and give you their best advice. We recommend you receive a Free Case Evaluation to get started.