Can Lawsuit Debt Be Listed in Bankruptcy?
Debt stemming from a lawsuit can be listed in a bankruptcy filing. In fact, protection from lawsuits is one of the key features of personal bankruptcy. Creditors and others could win multiple lawsuits against you and never collect a dime because of bankruptcy laws. However, to prevent abuses, there are limits on how often you can file for bankruptcy. It is better overall to settle lawsuits before they result in monetary damages.
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Summons and Complaint
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Pressure from a lawsuit begins when you receive legal documents called a summons and complaint. The summons is the notification of a lawsuit and is one or two pages long. Attached to the summons is the actual lawsuit, called the complaint. The complaint details the allegations being made against you. In a debt lawsuit, the complaint alleges that you opened a credit account at some point, made charges and eventually stopped paying. The complaint asks that you be forced to pay the remaining balance.
Delivery of the Lawsuit
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The summons and complaint is hand-delivered by a courier in most states. The courier will deliver the summons and complaint wherever he can find you, including your home or place of employment. Some states allow the summons and complaint to be sent by certified mail or to be left at your last known address. Once delivery is made, you are considered "served" with the lawsuit.
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Court Appearances
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The summons may list a date to appear before a judge or ask you to respond to the lawsuit in writing with a court hearing to be scheduled later. At some point, you are required to appear in court to answer the lawsuit. Generally in credit card lawsuits and similar cases, the attorney filing suit against you will always win in court if he proves that the debt is valid and you have refused to pay it.
Judgments and Bankruptcy
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The judge will enter a legal decision against you, called a judgment, if he sides with the party filing suit. The judgment forces you to pay a specific sum, and if you refuse, your bank account or wages could be garnished. Rather than take that chance, some people file for bankruptcy.
The Automatic Stay
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Chapter 7 bankruptcy and Chapter 13 are the most popular forms of personal bankruptcy and both feature a provision called the automatic stay, which is signed by a judge. The automatic stay automatically halts collection efforts on all of your debts, including judgments. With the automatic stay in place, debt collectors may not continue lawsuits or start new ones. Judgments are treated as unsecured debts during bankruptcy and will be discharged, or eliminated, during the bankruptcy. Chapter 7 can be completed in months but Chapter 13 requires a payment plan lasting three to five years. Chapter 7 is restricted to people below income levels established by individual states and people with low incomes are likely to qualify. Chapter 13 is available to everyone. Emergency bankruptcy petitions can be filed in as little as one day.
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