Many people ignore their financial situation until it becomes dire. Once a lawsuit is filed by a creditor for nonpayment, many people think there is nothing that can be done to help their situation. They wait around until the creditor receives a default judgment against them and they are on the verge of being garnished. I cannot begin to tell you how wrong this thought process is! As soon as you receive a lawsuit from a creditor regarding nonpayment, you should consult with an attorney quickly! Here is how a bankruptcy can help you immediately stop a lawsuit.
When you file for bankruptcy, you are immediately protected by the Automatic Stay. This is basically an automatic stop to collection efforts against you. A separate filing is not necessary; the steel cage of the automatic stay comes down to protect you instantaneously.
Once the bankruptcy has been filed, all of your creditors listed on the petition will receive notice of the filing. This is why it is important to list EVERYONE when filing – you want your creditors to know you have the automatic stay protection. If there is a pending lawsuit or garnishment against you, your attorney should let that creditor know right away that the bankruptcy has been filed so that lawsuit or garnishment ceases.
Once a lawsuit is filed against you, it is a race against time. You need to consult with an attorney before a creditor gets a default judgment against you and before something irreparable is done – for this discussion, see judgment liens blog post. Bankruptcy may not be a viable option for you or the suit may be one of the nondischargeable exceptions. Either way, make an appointment to speak with someone and get your options!