Our law office receives calls everyday where panicked clients contacts us (some right from the courthouse) that they have been served papers and sued and now are in a dilemma what to do? Well, it is not uncommon for the creditors to sue debtors as they are increasingly employing attorneys who file mostly generic lawsuits. They barely change names and files. If they win, they win the whole amount, and if someone files bankruptcy, then there is a dilemma? Some of these collection attorneys filed hundreds of these suits with almost same language. These firms work on very little money from creditors because they do volume of work for them. Now, you have been served. First, no need to be panicked. Sky is not going to fall, and there is no fear of an immediate garnishment or lien. You can be helped. Other than calling our office at (702) 270-9100, you can call any qualified bankruptcy attorney in Las Vegas, or Nevada, and see if they can immediately meet. We suggest, as always, to avoid paralegals because they turn out to be most expensive in the long run and cannot represent you in 341 meetings and any other side issues. In our office, we immediately meet our clients and provide free consultation.
As you may know, most people considering filing for bankruptcy protection are vulnerable to lawsuits brought by their creditors for debts owed. If you are served a summons by one of your creditors prior to filing bankruptcy, you will want to understand how that affects your bankruptcy case.
Effect of Filing Bankruptcy: The Automatic Stay
First, you have the instant advantage of filing bankruptcy as this include an automatic stay. Most lawsuits filed to collect debts owed are dischargeable in bankruptcy. This means that filing for bankruptcy, either before the court date or after a judgment has entered, will wipe out the debt for which you are being sued and the judgment itself if it has been entered.
This automatic stay is like an instant umbrella, which covers you from all the evil designs and manipulation of your creditors and plaintiffs. Once you file for bankruptcy, you are immediately protected by the automatic stay. The automatic stay prevents creditors from continuing to try to collect on your debts and it includes lawsuits. In other words, the automatic stay immediately stops lawsuits pending against you and protects you from collection activity, even ongoing garnishments, for the length of your bankruptcy. Now, let us not worry about garnishment at this time because filing of bankruptcy instantly stops all garnishments.
As you like to know, if you receive a Chapter 7 bankruptcy discharge, the debt you were being sued for is wiped out and cannot be collected on in future. In a Chapter 13 bankruptcy, most people end up paying a small fraction of their debts over time and receive a discharge on those debts at the end of their Chapter 13 payment plan.
What are the Exceptions to Bankruptcy Discharges?
Again, bankruptcy cannot discharge the following debts.
1. It cannot discharge child support accrued payments,
2. It cannot wipe out criminal fines.
3. It cannot wipe out student loans.
4. It cannot wipe out judgments based on personal injury lawsuits, which are willfully and negligently caused by you.
5. Also, certain IRS taxes lien cannot be discharged.
Now What to Do about the Summons? That alone is an important question.
If you are served with a summons to appear in court and you are considering filing bankruptcy, you have two options:
1) Answer the Complaint or 2) Do Nothing.
File An Answer
Filing an answer is not a bad idea, but you have to hire an attorney who can file answer for you and definitely requires a fee from you for his services. Also, he/she cannot withdraw from this case without court approval. That means you are hiring him/her for the life of the lawsuit until it is discharged or dismissed. Of course, attorneys are expensive and charge money for their services. When you are served with a summons, it will contain a time period in which you must file an Answer with the court (20 days in Nevada). If you do not file the Answer in that time frame, you lose the right to do so, and a default judgment will enter against you.
You can file an answer asserting your defenses you may have to the lawsuit, as well as any counterclaims you have against the party suing you. Defenses may include the statute of limitations, lack of evidence (ex., an accounting of the amount owed, including calculations of interest, payments made by you, etc.), or no proof that the creditor actually owns the debt. However, what defenses you have when you had borrowed money and are not paying back or unable to pay back because of no income. Truthfully, the deck is stacked against you and most of the time, you have no defenses. Again, failing to file an answer means you waive the right to assert any defenses or counterclaims and can be taken by the court as an admission that you owe the debt.
The advantages of filing an answer in the lawsuit essentially gives you more time until a judgment will enter. In addition, its side effect is that you would get more time as the court would not be doing any summary or default judgment and possibly give more time to the parties. Again, if you are not contemplating filing bankruptcy and seeking some time to contemplate your next move– filing an answer is not a bad idea.
Should You Do Nothing: Of course, this is an Option?
Well, you can sit and procrastinate more. Of course, this is a lousy option as procrastination has brought you to this status quo in your life. You know that an eminent default judgment is possible in this Do-Nothing-State. Well, you can wait for the default judgment to be entered against you and then consult a bankruptcy attorney. You can still call us at (702) 270-9100 and request a free consultation. Of course, we would still like to talk to you. Once a default judgment enters, the Plaintiff would try to collect it, and now they are looking for you, and your employment. Now, this do-nothing state should end, and you call us again. You are ready for filing of bankruptcy. Filing of chapter 7, if you qualify would instantly stop any collection activity.
What if a Judgment Has Already Entered?
Once a judgment enters against you, the creditor can seek to collect the judgment from either you or your property. The most common ways they do this are: 1) Garnishment, 2) Levy or attachment of bank accounts and 3) Judgment Lien filed on your property.
In Nevada, creditors can collect on a judgment by garnishing up to 25% of your wages. Once a judgment enters and the creditor gets a garnishment order from the court, the creditor will serve notice upon your employer, who will then give you notice of the upcoming garnishment. The garnishment will continue until the entire judgment is paid in full, including attorney’s fees and other fees for the collection efforts.
A bankruptcy filing can immediately stop a garnishment.
Attachment of Bank Accounts
Your judgment creditor can also collect against money you have in the bank. They do this by serving a notice to your bank. Your bank then seizes the funds (and often charges you a fee to do this) and gives you notice and a chance to claim the money exempt under Colorado or Federal law. Some possible exemptions would be social security funds or disability funds.
In some cases, bankruptcy can help you get those funds back if they would be exempt in your bankruptcy case.
Judgment Lien on your Property
In Nevada, your judgment creditor can file a transcript of the judgment in any county in which you own property and that judgment will act as a lien upon the property. This means that if you try to sell the property in the future that judgment must be paid before title can be transferred to a new owner. In bankruptcy, judgment liens that attach to property you claim as exempt may be avoided, or removed.
So what shall you do? Conclusion
It is of course a stressful situation when you are sued and can result in many problems for you and your family. It is not the time to compound your problem. It is time to seek help and call our office. Of course we are experienced in helping people in situation like you. Procrastination should not be an option anymore.
You are planning to file for bankruptcy; a lawsuit should not cause any problems, though it may speed up the timeframe in which you want to file in order to avoid a garnishment or liens on your property. In most cases, having a lawsuit filed against you by a creditor means it is a good time to have a free consultation with a bankruptcy attorney to explore all of your options. It is always better to know your options and the sooner the better. Most people wait too long to find out about bankruptcy protection and it costs them. If you are served with a summons, you should contact our office immediately by calling (702) 270-9100 and ask a free consultation.