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Credit card lawsuitIf you get sued by a credit card company or other debt collector you should consult with a bankruptcy attorney to learn about what options may be available to you. A bankruptcy lawyer can tell you if and how the debt that you are being sued for can be discharged through bankruptcy, which means you don’t need to pay the debt back. You should make an appointment with a bankruptcy lawyer before or soon after receiving garnishment papers as waiting until after a default judgment is entered against you is not a good idea as the judgment will be reported on your credit report and then your wages or bank accounts could be garnished and a lien placed on any real estate that you may own.  It’s possible that bankruptcy may not be a good option for everybody, therefore your bankruptcy attorney can also talk to you about whether it makes sense to file an Answer in your debt collection case or whether settling your debt may make sense for you moving forward, where the debt may be able to be settled for 50% of what you owe.

Once you file for protection under the Bankruptcy Code through either a chapter 7 bankruptcy or chapter 13 bankruptcy, something called the automatic stay prohibits any creditors from taking action against you or your assets, including garnishing your hard earned wages. If you have been sued and filed for bankruptcy, this means that the creditor cannot pursue the matter any further and the debt will likely be discharged at the completion of your bankruptcy case. If you have been sued but a judgment has not yet been entered yet, that creditor is treated just like any other unsecured creditor so long as the debt that you are being sued for is related to an unsecured debt such as credit cards or medical bills.  In order for a credit to take action against you to garnish wages or your bank account, they must obtain a judgment against you.

If you waited until after a judgment has been entered against you to file bankruptcy, things may make things more complicated for you. First of all, a judgment lien attaches to any real estate that you may own in the county in which the judgment was entered and in the county to which the judgment is recorded.  While the underlying debt may be discharged in bankruptcy, the judgment lien does not automatically go away.  In order to be eligible to make this lien go away are part of your bankruptcy, you must not have equity in real estate above your allowed exemptions (the lien must impair allowed exemptions) and then you must file a motion to avoid the judgment lien in order to eliminate the lien.  This will likely cause you to have to compensate your bankruptcy attorney in order to file this motion to avoid the judgment lien so long as you qualify to avoid the judgment lien which is why it is best that the judgment not get entered in the first place.

Therefore, for most people, the filing of a bankruptcy will help you if you have been sued by a credit card company as it stop the lawsuit from moving forward due tot he automatic stay.  If you determine that you will get to keep all of your assets and you are eligible to file for chapter 7 bankruptcy based on your household income and family size or want to consider a chapter 13 bankruptcy repayment plan over 3-5 years, bankruptcy may make sense.  The drawbacks to filing bankruptcy do include the bankruptcy itself reporting on your credit report for up to 10 years or being confined to commit all available disposable income to a chapter 13 repayment plan, but for most people the negatives are outweighed by the positive impact of filing for bankruptcy and stopping a wage garnishment and eliminating other debts.  Furthermore, for most people filing for bankruptcy, their credit scores improve after filing as most debts are now eliminated and a big part of a consumers credit score is how much of available credit lines are being utilized.  With that said, if you have stellar credit already, it is likely your credit score would go down.  In general I would say most people who file for bankruptcy end up with a credit score in the 600’s that can be improved on over the next couple of years and consumers can even qualify for home loans in about 2 years under most federal laws and qualify for auto loans and secured credit cards immediately after filing bankruptcy, so it’s not all bad and there is a lot of false information out there about bankruptcy so just be sure you consult a bankruptcy professional before making a decision on how you want to move forward in the future.

If you have additional questions about whether filing for bankruptcy will help you hand a lawsuit from a credit card company, please contact Symmes Law Group online or give us a call at 206-682-7975 to schedule your free consultation.

  • Richard Symmes

    Hi, Richard here.

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