One factor that persuades potential clients to consider filing for bankruptcy is the commencement of a lawsuit or impending trial.
Generally, the filing of a bankruptcy will stop all civil court action against you. However, until you file for bankruptcy all court proceedings will continue on as usual. The information below is generally information and should be used for informative purposes only. Every case is unique and the events that occur may also be unique. Here are some things to consider when it comes to bankruptcy and judgments/law suits:
Should I answer the complaint?
The law presumes that if you don’t answer the complaint, you agree with the contention of the lawsuit or at a minimum, you do not have a defense to the allegations. Reasons why you would want to file an Answer to the lawsuit are if 1) you have a defense; or 2) you want to buy time to consider your options or potentially delay the entry of a default judgment. A Creditor cannot collect until after they have a judgment.
Everyone will know I’ve filed for bankruptcy.
Unless you’re a prominent person or a major corporation and the filing is picked up by the media, the chances are very good that the only people who will know about a filing are your creditors. While it’s true that bankruptcy is a public legal proceeding, the numbers of people filing are so massive, very few publications have the space, the manpower or the inclination to run all of them.
What happens if I do nothing?
If you do not file an answer, the plaintiff/creditor will ask the court for entry of a judgment and be awarded the amount stated in the complaint. Once a judgment is entered, the plaintiff/creditor will begin collection activities including, but not limited to, obtaining a lien on your home (if you have one) and garnishing your wages from your paycheck (if you receive one).
Will bankruptcy stop garnishment on a judgment against me?
Bankruptcy will terminate garnishments as to wages earned after the filing of the bankruptcy. Once bankruptcy is filed the garnishment will stop immediately. Wages garnished before filing bankruptcy are generally not recoverable.