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A Chapter 7 bankruptcy can clear most lawsuit debt. In addition, if you file for bankruptcy before a collection lawsuit goes to judgment, you can stop the suit before it happens by getting your debt discharged. Read on to learn more about eliminating your lawsuit debt and other obligations through bankruptcy.
What Happens to Lawsuit Debt During Bankruptcy?
When you incur debt you cannot repay, creditors can sue you for breach of contract to get their money back. If successful, the lawsuit can grant them to right to collect what you owe by:
- Garnishing wages from your paycheck
- Levying your bank account to force your financial institution to withdraw funds
- Taking your personal property, such as your home or vehicle
If any pending lawsuits are not yet resolved, filing for Chapter 7 bankruptcy can eliminate the debts in question, which will help you save time and money and avoid the above consequences. If you already have judgments against you, you can get the lawsuit debt cleared.
According to the Consumer Financial Protection Bureau, once you file for bankruptcy, creditors must cease all collection activities until your case gets resolved. This stops creditors from taking further legal action.
Is There Lawsuit Debt You Cannot Eliminate?
Bankruptcy can discharge original debt and lawsuit debt related to credit card balances, personal loans, medical bills, and rental/service contracts. However, some legal debts are usually nondischargeable, including the following:
- Child support or spousal support payments
- Personal injury or wrongful death awards related to driving while intoxicated
- Debts owed to government entities, such as fines, court costs, or criminal restitution
- Student loans
Furthermore, creditors can file an adversary proceeding to prevent some debts from elimination, including:
- Awards for injuries caused by a willful or malicious act, such as assault
- Money, goods, or services obtained through fraud
- Assets gained through embezzlement while in a trusted position, such as acting as a trustee or guardian
What Is a Lien? Can You Avoid It With Bankruptcy?
If a creditor has a lien on your property, clearing your debt can be more difficult. A judgment lien allows your creditors to recover their money by selling your property or taking their share of the profits of any property you sell.
A successful bankruptcy does not always resolve a lien. However, you may get a lien avoidance if you can prove you meet certain qualifications. A bankruptcy lawyer with our firm can tell you more and help prevent you from losing your property.
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What Type of Bankruptcy Should You File?
Chapter 7 bankruptcy allows individuals and small business owners to discharge their qualifying debts. You can pursue other types of bankruptcies if you have some means of paying off your debts and would like to restructure/reorganize instead of eliminating them entirely.
You are eligible to pursue a bankruptcy case if:
- You meet the state age/residency requirement for filing.
- You have completed a mandatory credit counseling course.
- Your creditors refuse to negotiate with you to work out a payment plan.
- You are financially incapable of clearing your debts (e.g., what you owe monthly exceeds your income).
According to the United States Department of Justice, in addition to Chapter 7, types of bankruptcies include:
- Chapter 9. This type of bankruptcy allows towns, cities, school districts, and other municipalities to reorganize debt for repayment.
- Chapter 11. Chapter 11 is for businesses that would like to restructure, reorganize, and repay their debt while continuing to conduct business.
- Chapter 12. This type of filing is for family farmers or fishermen to reorganize their business affairs, pay debts, and continue operating.
- Chapter 13. Chapter 13 bankruptcy allows individuals to develop a plan for repaying their debts in a manageable fashion. You must complete repayment in three to five years.
- Chapter 15. Chapter 15 is for resolving international debts.
We assist clients across North and South Carolina with Chapter 7, 11, 12, and 13 bankruptcies. We can advise you on the type of bankruptcy that is right for you and your financial situation.
Are There Disadvantages to Filing for Bankruptcy?
There are some negative consequences to filing for bankruptcy, such as the following:
- It will lower your credit score. However, clearing your debts may allow you to rebuild your credit over time.
- It can limit your access to future credit. Filing for bankruptcy can make obtaining new credit or getting a loan more challenging. You may run into reduced credit limits or higher interest rates.
- You may lose your tax refund. If you file for Chapter 7 bankruptcy, your federal tax refund may be used to repay federal tax debts or turned over to a trustee to cover other debts you still owe.
- You could lose assets like your vehicle or residence, though we will do everything possible to prevent this.
- Your bankruptcy becomes part of the public record, meaning the public can obtain information about your case. Filing for bankruptcy could also affect others involved with your finances, such as loan co-signers or business partners.
What Does a Bankruptcy Lawyer Do?
There are many things a bankruptcy lawyer can do to help you navigate the legal system and pursue the most advantageous outcome for your case. An attorney with our firm can:
- Review your current financial situation and advise you as to whether bankruptcy is your best option
- Help you choose the type of bankruptcy that will most benefit you
- Identify your dischargeable lawsuit debts and other dischargeable financial obligations
- Fight to eliminate the maximum possible amount of debt
- Help you obtain required debt counseling and meet other filing requirements
- Track and adhere to deadlines
- Prepare, file, and manage paperwork and forms
- Ensure you submit the necessary personal and financial information
- Protect your assets and property
- Represent you throughout court proceedings
- Answer your questions and provide you with frequent case updates
The law does not require that you hire legal counsel. You can represent yourself during your bankruptcy. However, working with us can protect your rights, help you better understand the system, and ensure you discharge all available debts or negotiate a workable repayment plan.
Farmer & Morris Law, PLLC, Can Help With Your Bankruptcy
A bankruptcy lawyer with Farmer & Morris Law, PLLC, can help you protect your financial future. Contact us today to learn more about how we can handle your bankruptcy and clear your lawsuit debt and other debts. We offer free consultations to get you started.
