When you owe money to a company, they may engage in collections efforts in order to compel you to pay back what you owe. If you don’t have any money to give them or if the amount you pay is less than what they want, they will become increasingly aggressive in their attempts to solicit payment from you.
Some companies will turn the account over to a third-party collection agency that will harass you at home or at work. Other times, the company might just choose to file a lawsuit against you. A creditor lawsuit is something you need to respond to quickly, as it can cause significant complications for you. For many people, filing personal bankruptcy is the best response to a pending creditor lawsuit.
What happens when a creditor sues you?
If a company that you owe money to takes you to court, they will likely try to get a judgment against you. If the courts rule in their favor, the company may be able to garnish your wages.
For someone already struggling to balance their budget, a garnished paycheck could mean not being able to make ends meet at all anymore. As if that weren’t bad enough, a record of the judgment will go on your credit report and drag down your score, making it harder for you to secure good financing.
An automatic stay can temporarily help with a pending lawsuit
When you file a petition for bankruptcy with the courts, you receive an automatic stay until they decide if they approve your request or not. Your automatic stay will protect you from collection activities for as long as your bankruptcy remains pending.
Although an automatic stay won’t stop a garnishment that a creditor has already secured in court, it can stop a lawsuit in progress. In some cases, creditors can go to the courts and ask them to lift the automatic stay or to preclude the inclusion of the debt in the bankruptcy proceedings.
In common cases of unsecured debt, such as credit card or medical debt, the optimal result will be an end to the lawsuit and, hopefully, the discharge of the debt when the bankruptcy petition eventually proves successful.