How to File Bankruptcy to Avoid a Lawsuit Debt
Bankruptcy is one solution to an overwhelming debt load, but it isn't a magic bullet. Some debts, such as back taxes, can't be "discharged" even if you claim bankruptcy, and it requires careful planning to eliminate others: If you put lots of bills on your credit card right before you file, for instance, the court may decide that you can't discharge them. If someone's filed a lawsuit against you, bankruptcy may provide you with a solution to paying damages you can't afford.
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Instructions
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Filing Bankruptcy
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File promptly. The Legal Helpers website states that filing for bankruptcy after you've been sued can prevent the plaintiff from collecting a judgment or placing a lien on your home. If you wait until after the lawsuit is finished and the court rules against you, whatever damages levied against you become a secured debt, and you may not be able to discharge it through bankruptcy.
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Decide if you wish to liquidate your assets completely. This means filing a Chapter 7 bankruptcy, under which all property not legally exempt can be sold off to meet your debts; once the property is gone, your debts are gone too, unless your creditor challenges the discharge in court. U.S. government reports show debtors receive a discharge in 99 percent of Chapter 7 cases, though if you're dealing with consumer debt rather than business debt, you will probably have to undergo credit counseling.
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Consider Chapter 13 bankruptcy as an alternative. The "wage earner's plan" allows you to pay back your creditors all or part of the money they're owed over three to five years. The government says it doesn't require paying off all your debts, so long as all "disposable income" goes to your creditors, and they receive as much money as they would under Chapter 7, less what you and your dependents need to live on. The advantages of Chapter 13 are that it protects your home from foreclosure and gives you a way to pay off secured debts that can't be discharged.
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File a petition with the bankruptcy court. Whether you're using Chapter 7 or Chapter 13, you'll need to file a schedule of assets, liabilities, income and expenditures along with the petition as well as a statement of financial affairs.
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Tips & Warnings
Check the exemptions allowed in your state. The federal law has a list of exempt property that you can keep after bankruptcy, but you can choose to use your state's exemption policy instead. Florida, for instance, has a more generous exemption for your home than the federal rules would grant.
Certain kinds of debts, such as child support, or debts incurred from a drunk driving accident, cannot be discharged. If you're in any doubt, check with a bankruptcy attorney.
References
Resources
- Photo Credit Bankrupt. Businessman with empty pockets (with clipping paths) . image by Vitaliy Pakhnyushchyy from Fotolia.com
