As a bankruptcy attorney, a lot of folks come to our office after a creditor has filed a lawsuit against them. In some cases, they have personal injury judgments that they cannot afford to pay and that insurance won’t cover. In those cases, once the plaintiff wins their lawsuit, they can file a second suit to recover the judgment. The judgment allows the creditor to place a lien on your property, levy your bank account, or garnish your wages. All of these outcomes are best avoided. So, we get a lot of clients who come into our office as they are being sued either by creditors attempting to collect a debt or a plaintiff attempting to collect a judgment.
Bankruptcy will freeze any lawsuit against you, including creditor lawsuits. However, there are some restrictions on the types of personal injury judgments that can be discharged in bankruptcy. Most personal injury judgments can be discharged in bankruptcy. However, judgments alleging willful malice or gross negligence (especially DUI-related judgments) can never be discharged.
How Does Bankruptcy Freeze a Lawsuit?
Before you file for bankruptcy, creditors can take specific actions against you. This includes attempting to collect a debt, filing a lawsuit, or seeking a judgment. Once you’ve declared bankruptcy, however, all of these actions must stop. The matter is now being handled by the bankruptcy trustee and the court.
Filing for Chapter 7 During a Lawsuit
In order to make the most out of your bankruptcy filing, you want to ensure you file for bankruptcy before you have a judgment against you. In some cases, a judgment may create an automatic lien on your home. This would prevent you from selling the home, or if you did, the money would then go to repay the judgment creditor. Ultimately, having a lien on your home scares buyers away. So, it is difficult to sell a home if there is a lien on it.
To avoid having a lien placed on your property automatically, you want to avoid the judgment altogether, so filing for bankruptcy before the judgment is entered is better than after. Once the lien is on your property, bankruptcy cannot get rid of it. Creditors and debtors are often in a race against time to get the judgment or the bankruptcy first.
However, in most cases, debtors do not show up to court for the lawsuit. A default judgment is entered against them, and if they live in the same county that the judgment was entered, then a lien will be placed on any real property they own.
How Can a Bankruptcy Attorney Help?
If you know a judgment is incoming, it is best to get ahead of it before it can do real damage. Call Chris Arrington today to schedule a free consultation and discuss your situation in more detail.