At What Point During a Lawsuit Should You File for Bankruptcy?
You have been served with a complaint. Whether that lawsuit stems from a car accident or contractual breach, you may automatically wonder what the result may be. Could you lose everything you own? It is good to know that bankruptcy can be a solution in some cases. When can bankruptcy help, and at what point should you consider filing for relief?
The first thing to consider if you face a lawsuit or have already had a judgment entered against you in one, is that bankruptcy cannot discharge the judgment of certain types of lawsuits. Although it can discharge most types of suits, it cannot help if the lawsuit stems from the act discussed in Section 523 of the Bankruptcy Code. For instance, if your lawsuit stems from a drunk driving accident, you may not be able to discharge the resulting damages. Talk to a bankruptcy attorney about whether your lawsuit damages will be discharged in bankruptcy.
If your lawsuit is dischargeable in bankruptcy, you should file for bankruptcy before a default judgment is entered, or a judgment lien is granted. If you do not defend your lawsuit, a judgment will be granted against you, and the court will eventually grant permission for that party to collect damages from you without your permission, most likely by seizing bank account assets or garnishing your wages. If you defend your suit and lose, but do not pay the judgment, the same thing will occur.
If you file for bankruptcy before these steps are taken, you can avoid losing your assets and discharge the case before it is a secured debt. Talk to an experienced attorney about your options before you make any decisions.