Filing Chapter 7 bankruptcy can stop a pending creditor lawsuit

On Behalf of | May 28, 2020 | Chapter 7 Bankruptcy

When you fall behind on your bills, it’s often only a matter of days before collection agents start calling you. Some companies, including utility companies and banks, have in-house collection agencies that will contact you.

Debts related to medical expenses and similar outstanding bills might wind up in the hands of third-party collection agencies who get hired by the company that you owe money to.

Whether you must deal with the company that you owe money to or a collection company, the longer you go without making payments, the more likely it is that they will engage in aggressive collection tactics.

Creditors sometimes sue the people who owe them money

Filing a personal lawsuit against someone who has not made adequate payments on an outstanding debt is one way that creditors try to get their money back. A successful creditor lawsuit could very well result in a garnishment of your wages, which means you will have less take-home pay and even more trouble paying your bills. Thankfully, Chapter 7 bankruptcy offers a way out for those facing a pending creditor lawsuit.

Your protection from collection activity starts the day you file

You probably know that bankruptcy takes some time to resolve. However, you have protection as soon as you file your petition for Chapter 7 bankruptcy in court. You receive an automatic stay for all debt collection activity until the courts either approve or ultimately reject your petition for bankruptcy.

That automatic stay means that creditors can no longer call you or make any other attempt to collect on a debt. An automatic stay will not end an existing garnishment of your wages. However, it will allow you to have the courts dismiss a pending lawsuit and avoid that garnishment from ever occurring.

A successful filing means the discharge of that debt

If you successfully file for Chapter 7 bankruptcy, the courts will discharge certain unsecured debt that you have accrued, including medical and credit card debt. That discharge means that you won’t have to worry about collection activity resuming after your bankruptcy. Instead, you will have fewer bills and debts, meaning you have more income to direct toward your monthly budget.


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