When some sues you, there are very few ways to stop the lawsuit other than getting the other party to dismiss a debt collection lawsuit. However, filing bankruptcy stops the lawsuit immediately. If a creditor sued you, you need to file a Suggestion of Bankruptcy as soon as possible after filing bankruptcy.
How Does a Suggestion of Bankruptcy Work?
It helps to understand how the bankruptcy automatic stay works before discussing a suggestion of bankruptcy.
The Bankruptcy Automatic Stay Protects Your Assets
When you file a Chapter 7 or Chapter 13 bankruptcy case, the 11. U.S.C. §362 imposes an automatic stay on most civil actions seeking payment of a debt. Therefore, if a creditor or debt collector filed a lawsuit against you because you owed a debt, that lawsuit must be paused.
The automatic stay protects your property and income. Creditors and the court can seize assets to repay your debts. The stay applies in most cases. A creditor cannot continue a lawsuit or action without seeking permission from the bankruptcy court. Likewise, your creditors cannot take steps to collect a debt without petitioning the court for a modification of the automatic stay. The automatic stay remains in force until you complete your bankruptcy case, unless modified by the bankruptcy judge.
When you complete your Chapter 7 or Chapter 13 case, the bankruptcy court issues an Order of Discharge. The discharge order is a permanent injunction. It prevents creditors from taking any actions to collect a discharged debt.
Bankruptcy discharges most debts. Unsecured debts discharged in bankruptcy include:
- Medical bills
- Most personal judgments
- Credit cards
- Personal loans
- Old rent and lease payments
- Deficiency judgments
Additionally, some old income tax debts could be eligible for a discharge. Likewise, some Chapter 7 debtors might discharge student loan debt, if they meet specific requirements for discharging student loans.
Domestic support obligations (child support and alimony) are not dischargeable. Most debts owed to the government are also not dischargeable. You can discharge secured debt (the creditor has collateral on real estate or personal property), but you would need to surrender the collateral to get rid of the debt.
How Does the Suggestion of Bankruptcy Work?
A suggestion of bankruptcy is a form that notifies a civil court that you filed for bankruptcy relief. A suggestion of bankruptcy can be filed for a Chapter 13 or Chapter 7 bankruptcy case. The suggestion of bankruptcy does not dismiss the civil court action. However, it pauses the action. Any trials or hearings scheduled in the case are canceled.
Even though all creditors receive notice of the bankruptcy filing from the bankruptcy court, it is still wise to file a suggestion of bankruptcy with the court. The suggestion of bankruptcy needs to be filed with the court where the civil action is pending and served on all parties to the action and their attorneys of record.
Even though creditors receive notice of the bankruptcy filing, the creditors might not take action to pause the lawsuit. By filing a suggestion of bankruptcy, you ensure that the civil court knows about the bankruptcy filing without delay.
A Lawsuit Could Continue Without You After You File a Suggestion of Bankruptcy
It is important to note that a lawsuit might continue against other defendants. When the suggestion of bankruptcy is filed, the civil case stops. However, the plaintiff (the party who filed the lawsuit) can petition the court to allow the lawsuit to proceed against the other defendants (the parties being sued).
If the court grants the request, you could be called as a witness in court. However, you would not be held liable for the outcome of the case absent an order lifting the stay or unusual circumstances.
There is an exception for co-debtors. The automatic stay protects co-debtors if you file a Chapter 13 bankruptcy case and the debt is consumer debt. However, the creditor can petition the bankruptcy court to modify the co-debtor stay, if the Chapter 13 plan does not repay the debt in full.
What Should I Do if I Am Sued for a Debt I Cannot Pay?
If you receive a lawsuit, do not ignore it. Read the Summons to determine the deadline for filing a response or answer. Depending on state law, you may have up to 30 days to file a response. At this point, you have several options:
- Pay the debt – You can contact the creditor’s attorney to arrange to pay the debt.
- Negotiate a payment – You can contact the creditor’s attorney to ask if they are willing to accept a payment plan or negotiate a settlement for a lower amount.
- Respond to the lawsuit – If you do not believe you owe the debt or the information in the complaint is incorrect, contact a lawyer about fighting the lawsuit. NOTE: You need to act quickly to avoid missing the deadline to respond.
- Do not respond – Ignoring a lawsuit typically results in a personal judgment. The creditor asks the court for a default judgment. The court enters a judgment against you stating you owe the debt.
- File bankruptcy – Filing bankruptcy stops the lawsuit. If the debt is dischargeable, the lawsuit cannot go forward, and the debt is discharged when you complete your bankruptcy case.
If a creditor receives a judgment against you, the creditor could petition the court asking for additional relief. Additional relief could include wage garnishment and selling your assets to satisfy the debt. However, you could get rid of the debt if you file for bankruptcy. Chapter 7 and Chapter 13 discharge most personal judgments.
Try our free Chapter 7 calculator to see if you meet the income qualification for a Chapter 7 bankruptcy case. We also have a free Chapter 13 calculator. If you are interested in other ways to resolve debt problems, try our free Debt Relief Comparison Calculator.
Contact Ascend for More Information
At Ascend, we aim to help you find an affordable solution to your debt problem. You are not alone. We are here to help.
Call or text us at (833) 272-3631 or contact us online for a free case evaluation.
