Can I File for Bankruptcy to Prevent Lien in Case the Plaintiff Wins Pending Lawsuit?
Provided by HG.org
A bankruptcy filing has an immediate effect on pending lawsuits and existing judgments. However, filing for bankruptcy before someone obtains a judgment can have certain benefits. These benefits may prevent the enforcement or issuance of a judgment.
A lawsuit is a method for a creditor or other individual to get a court to issue an order against the defendant that states money is owed to the creditor and the amount that is owed. Sometimes defendants do not respond to lawsuits from creditors or other individuals, such as personal injury victims whom they have injured. However, this can result in a default judgment against the individual when certain arguments and defenses may have been viable.
Before a creditor or other person can put a lien against a house when the house was not used as collateral or was not subject to a mechanicís lien, it must secure a judgment against the defendant. This requires filing a lawsuit and proving the case or winning by default. After the creditor has a judgment, it can seek enforcement action. This includes trying to garnish a personís wages, seizing assets in the defendantís bank account, putting a lien on the defendantís property and other action. When a lien is placed on the defendantís real property, the defendant cannot sell the property before paying off the lien.
After a bankruptcy petition is filed, an automatic stay is issued. This order acts as an injunction against others to file a lawsuit or pursue collection efforts. This protects against creditors who have filed a lawsuit as well as any cases that are pending. The automatic stay puts the case on hold until the bankruptcy is resolved. Notice of the bankruptcy proceeding is sent to all of the defendantís creditors, including to any individuals or companies who are involved in any pending lawsuits.
Difference in Bankruptcy Filings
In Chapter 7 bankruptcy, debts are discharged while in Chapter 13 bankruptcies, the debt is restructured.
Discharge of Debt
If the debt is discharged in the bankruptcy process, it legally does not exist and a creditor cannot recover it in court. Additionally, the creditor cannot pursue further collection efforts, such as trying to garnish the defendantís wages or levying his or her assets. However, if the debt is considered non-dischargeable, the creditor can pursue the claim even after the bankruptcy is approved. Some debts may not be discharged. For example, bankruptcy will likely not provide protection against child support that is owed. Unsecured debts such as credit cards or medical bills may qualify as dischargeable under Chapter 7 bankruptcy. In some cases, tax-related debt can be discharged. Student loan debt is usually not dischargeable. In many cases, spousal support debt cannot be discharged.
In some cases, judgments are not discharged. For example, if they involved fraud or other elements that prevent them from being discharged, they may remain. Additionally, liens that are already in place may not be removable during the bankruptcy process.
Effect on Ongoing Lawsuits
When a lawsuit is already in place, a bankruptcy can still affect it. If wage garnishment is in effect, the bankruptcy filing can put a stop to it. An existing judgment against a debtor does not prevent a person from being able to file bankruptcy.
Benefits of Filing before a Judgment is Secured
There are often more options available to consumers before a judgment is secured. Additionally, when the bankruptcy is secured before the judgment is entered, enforcement activity such as having wages garnished or other assets levied can be prevented completely. Filing for bankruptcy often takes time and a review of many documents. Before the case is filed, the debtor could be losing wages through garnishment or other assets through enforcement activity. If a lien is placed against the property, it can take additional fees and require additional steps before it is removed. Filing the bankruptcy before a lien is placed can help avoid having to take these extra steps and the additional fees. Additionally, if a bankruptcy is filed before a judgment is entered, it can prevent a judgment from being entered that would prevent the debt from being discharged, such as there being a finding of fraud.
When confronting lawsuits from creditors, personal injury victims or other individuals, it is important to discuss the case with an experienced lawyer. He or she can assess the available options and provide a recommendation based on this information.
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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.