Many different financial challenges might prompt an individual to file for bankruptcy. Some people worry about creditors trying to repossess their vehicles or lenders foreclosing on their homes. Others cannot balance their budgets and eventually seek relief through the bankruptcy process.
Many people decide to file for bankruptcy in response to a creditor lawsuit. When an individual or business owed money by a person believes that they do not intend to pay or that they have violated payment arrangements, then they may take the matter to civil court. A creditor lawsuit can cause major financial disruptions, which is why many people served with creditor lawsuit paperwork eventually decide to file for bankruptcy.
Bankruptcy can prevent long-term financial setbacks
Creditor lawsuits have the potential to cause lasting economic damage to people already struggling with challenging financial circumstances. For example, creditors can seek to garnish someone’s wages. They can receive a portion of a debtor’s income before they ever receive their paycheck taking the choice of who to pay and when to pay out of an individual’s hands.
Wage garnishment can complicate bankruptcy and cause a host of financial setbacks. Creditors might also pursue a lien against a home or other valuable assets. Filing for personal bankruptcy before a creditor takes those more extreme steps can help the individual protect their income and their assets. Bankruptcy does not always resolve prior judgments or eliminate the impact that they have on the filer.
Bankruptcy resolves the underlying debt
The automatic stay halting collection activity is what ends a creditor lawsuit after someone files. The benefits continue if the filer is ultimately successful. They can obtain a discharge that the courts grant as a way of eliminating their unsecured debts. Medical debts, credit card balances and other financial obligations not attached to specific personal resources may be eligible for discharge.
After a successful bankruptcy filing, the filer no longer has any obligation to make payments on those debts. The creditor or lender cannot attempt to collect on them in the future either. The elimination of certain financial obligations can take a lot of pressure off of an individual’s budget and can help them meet their other financial responsibilities.
Choosing to file for personal bankruptcy can be a difficult decision, but it is a reasonable response to a pending creditor lawsuit. People who get served with lawsuit paperwork may need help evaluating their options to avoid a judgment that could cause long-term financial hardship, and that’s okay.