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FAQ'S

Lawsuits and Bankruptcy

1. If I am served with a lawsuit should  I answer the complaint?

If you are eligible to file for bankruptcy then a bankruptcy will stop any and all lawsuits. The automatic stay of bankruptcy is what stops lawsuits and most all other legal actions against you. Under section 362 of the United States Bankruptcy code, 11 U.S.C. 362, the automatic stay begins at the moment the bankruptcy petition is filed. Therefore,  the automatic stay will stop a lawsuit the very moment you file for bankruptcy. The automatic stay does not stop criminal prosecutions against you, and it does not affect enforcement actions to try to collect child support.

Every day in New Jersey thousands of debtors are served with lawsuits for all types of outstanding debts. There are all types of lawsuits that involve many different areas of dispute such as; collection lawsuits for outstanding credit card debt, for unpaid medical bills, for personal injury cases caused from auto accidents, for fraud claims, and also to child support arrears. When a person is swamped with massive debt and he receives a lawsuit from a constable or a process server, they are often forced to consider to file for bankruptcy as a way to stop the lawsuit. Many debtors are very scared, and they erroneously believe that they could go to jail if they are sued. Moreover, many debtors are horrified that they could lose their property, or have their paychecks garnished by being sued. I always advise all debtors that once they receive a lawsuit they should either answer the complaint or file bankruptcy. A debtor should never simply just ignore a lawsuit and foolishly hope that it goes away. It will not I can assure you!

As a New Jersey bankruptcy attorney I have helped out thousands of New Jersey-ites file for bankruptcy. In my experience I have seen a number of bankruptcy filings that were motivated by receiving a lawsuit. A lawsuit can often be the final straw that drives a person to file for bankruptcy. Filing bankruptcy to stop a lawsuit can also be the most cost effective option for any debtor. The cost to file for a  bankruptcy is usually set at a fixed fee. Meanwhile, the cost to defending against civil lawsuits can be endless and also extremely expensive. Lawyers charge a client by the hour to defend against a civil lawsuit. Moreover, the legal costs to defend against a civil lawsuit don’t have a specific time frames to be completed, there are no fixed costs, and the ultimate final outcome is often hard to predict. Civil lawsuits can be dragged out for years, and the defendants can rack countless hours of billable time and expenses. Thus, filing for bankruptcy to stop a lawsuit can stop lawsuits “dead in their track,” and it can alleviate the stress that lawsuits cause.

Nonetheless, in many cases it may be advisable to answer a lawsuit. If you have a legitimate defense(s), a reasonable chance to prevail, or if you have a  valid counterclaim against the creditor then you should consider defending against the lawsuit. Also, if you can afford it both financially and emotionally, then it may be a beneficial option to answer the lawsuit. If you believe you have a counterclaim or a good defense then you should seek the advice of an experienced attorney. Although you don’t need an attorney to respond to the lawsuit, it is important to properly answer the lawsuit, and  to abide by the New Jersey Rules of Civil Procedure. If you don’t know what you’re doing in a court, then you may create more problems for yourself by go pro se. Please keep in mind that if you don’t answer the complaint within the legal time frame then the law presumes that you are in agreement with the allegations that are contained in the lawsuit.

2. Should I defend against the lawsuit or should I file for bankruptcy?

It depends on the particular facts of the case and on your personal financial condition. Every case is different and has its own set of unique circumstances. There is no “cookie cutter” answer for every debtor’s financial predicament. Many people earnestly believe that the only way to deal with a civil lawsuit  or foreclosure is to file bankruptcy. Bankruptcy may be a good choice for some people but not for others. There are bankruptcy alternatives to address debt related lawsuits which include defending the lawsuit. Since there are many lawsuits filed, these alternatives may be realistic options to pursue when you are facing a lawsuit. Lawsuits and foreclosures can be easily defended if they are not prepared and  filed properly.

Most people don’t contest or defend against lawsuits or even pursue their legal rights to defend against a wrongful foreclosure(s), frivolous lawsuit(s), or any other legal scenarios wherein they would likely prevail. What works for one debtor may not work for debtor. In order to determine whether to defend a lawsuit or file for bankruptcy relief, you should seek the advice of an experienced bankruptcy lawyer like New Jersey Bankruptcy Center. In summary, the law of New Jersey presumes that if you don’t answer the complaint, then you agree with the allegations contained in the lawsuit. Therefore, it is extremely important that you consider answering the lawsuit if; 1) you have a defense; or 2) whether you want to answer the complaint to “buy” time to allow you to reassess your financial condition.

3. What happens if I “blow off” the lawsuit and if I don’t answer it?

If you do not file an answer to the lawsuit, then the plaintiff can request that the court enter a default judgment against you. The plaintiff will request that the court grant it a judgment for the amount as  requested in the complaint plus interest, court costs, and attorney fees. Additionally, the plaintiff will also have to submit proof to the court to substantiate any of the claims for damages. If a debtor does not participate in any proof hearings, then you can’t make any legal arguments to the court to try to mitigate any of your damages. If a debtor participates in a collection case, then in many instances he can convince the judge to enter a judgment for a lower amount.

Once a judgment is entered against you, then the plaintiff can obtain a lien on all of your assets. Thereafter, a judgment creditor can make an application for a levy on your bank account(s), file a wage ex application to garnish your paycheck, or docket the judgment in Trenton. In many cases even after a creditor obtains a judgment, a debtor can still negotiate with the creditor to try to reach a settlement. It is very difficult and expensive to collect upon a judgment.  However, judgments are public records and they are listed on your credit report for up to ten years.  Thus, if you have a judgment filed against you this can ruin your credit report. Therefore, in many instances a debtor should try to negotiate  a lump sum settlement with the creditor to pay off the judgment. Once the judgment is settled, then the creditor must file a form called a warrant of satisfaction with the court clerk.

4. Do I have to file bankruptcy before my creditor obtains a judgment against me?

It is important to emphasize that it takes several months for a creditor to obtain a civil judgment against you. Once you receive the summons and complaint it generally takes four to six months for a creditor to obtain a judgment in the Special Civil Part Court. Therefore, don’t panic and file bankruptcy unless you have carefully reviewed all of your options.

A judgment is just as dischargeable as your other debts such as credit card bills or medical bills. However, the major difference is that a judgment creates a lien on your property. If you own a home, then the judgment will become a lien on it. Once you file for bankruptcy then the lien will become voidable, and it can’t be enforced in state court anymore. However, the lien will still exist in the court’s computer system. Thereafter, a debtor will be required to file a motion to void a judicial lien in the bankruptcy court or in state court. If a debtor should choose to void a judicial lien in state court, then he must wait one year after he receives his bankruptcy discharge. A debtor can immediately file a motion to void a judicial lien in bankruptcy court while the case is open. However, most lawyers charge additional legal fees to void a judicial lien. In my experience, most debtors are just “broker than a door knob” and they can’t afford to pay the extra fees to the lawyer to void the lien. In summary, judgment liens can create all types of legal problems. Judgment liens ruin the title to your home, destroy your credit, and just make life miserable. Don’t blow off a lawsuit if you receive one. The judgments that are filed against you often haunt you for your life!

5. Does a bankruptcy filing stop a wage garnishment?

A bankruptcy filing will stop a wage garnishment. Therefore, if you receive a wage execution application, then if you file for bankruptcy this will immediately stop it. Many debtors are absolutely horrified at the prospect of having their wages garnished. Would you want your boss to be aware that you don’t pay your bills. What an embarrassment! One of the best aspects of filing for bankruptcy is that it will stop a wage execution. Moreover, if your bank account has been “frozen” or levied, then a bankruptcy will stop your creditor(s) from any further legal actions to seize your money.

6. What happens if I answer the lawsuit but I ultimately lose the case?

That depends on the particular facts, the allegations, and the grounds for relief as requested in the lawsuit. If the lawsuit demands the return of a secured item like a home in a foreclosure proceeding, then the creditor can sell the property at a foreclosure sale. If a creditor filed a lawsuit that demanding money for an unpaid car repo deficiency, and if you lost the lawsuit,  then a money judgment can entered against you. Finally,  if the lawsuit alleges fraud or intentional injury, and if you lose the lawsuit then you could face much more serious consequences.

There are endless terrifying legal possibilities that could arise if you “blow off” a civil lawsuit, and if you don’t answer it or if you choose not to file for bankruptcy! It is important to emphasize that that even if you lose a lawsuit and if a creditor obtains a civil udgment, then you can always appeal the judgment if you have the legal grounds to do so. Alternatively, you can negotiate with the creditor for the payment of the judgment. Even after a judgment is entered against you, a creditor still has to incur more legal expenses to actually collect or enforce the judgment. As such, you can sometimes negotiate a lesser amount on the judgment for settlement. If you lose the case and if you are eligible, then filing for bankruptcy may be an option to eliminate the judgment. In cases involving non-dischargeable debts such as those of fraud or tortious conduct, then bankruptcy is not an option to discharge the debt. A bankruptcy filing may however allow you to repay it over time. Only you can weigh the options after consulting with an experienced bankruptcy attorney.

7. What are my best possible options to consider if I receive a lawsuit that was filed against me?

I don’t advise any debtor to file for bankruptcy merely because he is being sued. A lawsuit can always be ultimately settled. The creditors only wants to receive their money, and they do not to ruin you or your credit if they don’t have to. The decision to file bankruptcy should never be made by only considering a single debt or a lawsuit. A debtor should only consider filing for bankruptcy after he considers his total financial picture, the scope of relief that bankruptcy offers, and the non-bankruptcy alternatives.

If you have been sued, then you may have bankruptcy options under chapter 7 or a chapter 13 to stop the lawsuit and receive a discharge in bankruptcy. Many people who are served with a lawsuit never respond or wait until the day before the response is due to seek legal advice. Knowing when to consult a lawyer is extremely important when you have been sued.

If you live in New Jersey and if you have been sued, then you should not wait until the last minute to obtain legal counsel. Whether you are considering bankruptcy or defending the suit, you have options to address the lawsuit. If you have been served with a lawsuit or are in the middle of being sued, then filing bankruptcy may be your best option. A lawsuit can be very costly to defend. Whether the cost is financial or emotional, a lawsuit shouldn’t be ignored, since doing so can make things even worse. It is quite surprising that many people don’t even bother to defend against a lawsuit. Many debtors simply don’t understand the legal system, or they may feel that they can’t afford to defend against the lawsuit. Therefore, it is important to know all of your legal options to deal with the lawsuit or you may have more serious legal problems later on.

For many people, filing bankruptcy can be the least costly way to stop a lawsuit, but only you can decide. The start of a lawsuit or an upcoming trial often prompts many lawsuit defendants to consider to file for bankruptcy. Because there are many types of lawsuits with just as many legal grounds to support them, there is no clear and decisive answer to determine whether the filing of a lawsuit should cause you to file bankruptcy. Every lawsuit is unique and has its own set of facts. It’s always advisable to consult with an experienced lawyer to advise you on your legal rights and your chances of prevailing in a defense against a lawsuit.  Filing for bankruptcy can stop a lawsuit, but the decision to file should only be made after understanding all of your bankruptcy and non-bankruptcy options to deal with the lawsuit, along with their consequences and impact.