Creditors owed money by individuals are often aggressive when attempting to collect. They may call repeatedly, send strongly-worded letters or even threaten to take legal action. If a creditor actually files a lawsuit and serves a debtor, they are at risk of significant, long-term financial challenges.
A judgment in favor of a creditor can lead to liens against valuable property or wage garnishment that may worsen the pressure on an individual’s budget. Those served with lawsuit documents from a creditor likely need to take immediate action to protect themselves. For many, filing for bankruptcy is the best solution.
Litigation likely favors the creditor
Those facing creditor lawsuits have the right to respond in court. However, provided that the debt itself is valid and the creditor complied with debt collection laws, the courts are likely to rule in favor of the creditor.
Even when extenuating circumstances impact a person’s ability to repay what they owe, the courts base their ruling on the legitimacy of the financial obligation and the actual payments that have transpired, not circumstances that may look like excuses to creditors. Instead of attempting to convince the courts to dismiss the creditor lawsuit or to defend against the lawsuit, filing a personal bankruptcy can be a faster and more effective solution.
How bankruptcy helps
Personal bankruptcy offers relief from financial pressure through the discharge of eligible debts. Long before that occurs, however, the filer benefits from an automatic stay. All collection activities should halt until the courts dismiss the bankruptcy filing or grant the borrower a discharge. The automatic stay gives a filer time to evaluate their circumstances, rework their budget and possibly negotiate new arrangements with some of their creditors.
Any pending lawsuits are typically subject to dismissal once the automatic stay takes effect. Filers then do not need to worry about the added financial pressure that could follow a ruling in favor of their creditor. While a later bankruptcy filing can offer some relief for those already subject to a judgment, avoiding a judgment is often a better option than trying to deal with the consequences of one after a lawsuit.
Consulting with a bankruptcy attorney about the different chapters of bankruptcy and the debts that make a filing necessary could help those struggling with overwhelming financial obligations avoid the worst-case scenario. A creditor lawsuit is often a warning sign that attempts to manage overwhelming financial obligations have failed and a more aggressive solution is necessary.