When you’ve been sued, you have short term tasks and bigger picture decisions. The most important thing to know is that, for good or bad, the law doesn’t move as quickly as you imagine. You have some time to make decisions.
How long do I have in the short term?
Service of a complaint for money starts the lawsuit time line. Due Process, found in the Fifth and Fourteenth Amendments to the Constitution, guarantees that you get an opportunity to oppose the relief sought in the complaint. Typically, that period for filing an answer ranges from 20-30 days. The summons, served with the complaint, tells you when an answer is due.
If you file a written answer, the matter proceeds to a case management conference before a judge. That conference will focus on determining the contested issues and what are the issues needing a trial. Generally, not having the money to pay is not a defense.
If you don’t file an answer, you are presumed to agree that you owe the money and the creditor is entitled to a judgment. There won’t be a court date.
Judgments require more paper
In the absence of a written answer, the creditor typically submits paperwork requesting entry of default and judgment as laid out in the complaint.
On its own schedule, the court enters the judgment. In some states, the judgment automatically becomes a lien on your assets; in other states, getting a judgment lien requires the submission of yet more papers for the clerk to issue.
Judgments grant creditors collection rights
Entry of a judgment entitles the judgment creditor to use the processes of the court to collect its money. Those processes include levy on assets; liens on property, real or personal; and in some states, garnishment of wages. Four states prohibit garnishment on garden-variety judgments: North Carolina, Pennsylvania, South Carolina, and Texas.
Exercising those collection rights require the judgment creditor to get yet more papers from the judge or court clerk.
A judgment debtor has defenses to collection in the form of exemptions. Those are laws that protect certain kinds of assets from collection by a judgment creditor. Each state has its own exemption laws, some quite limited and others more generous.
Lawsuits trigger bigger decisions
The next question is whether the lawsuit in hand is your only debt problem, or whether it’s just one of a number of debts that exceed your ability to pay. If the problem is bigger than the one lawsuit, it’s time to consider a global remedy for debt.
While there are lots of ads for “debt management” or “debt relief” or “debt settlement”, the truth is that they are seldom match the relief available in bankruptcy. In bankruptcy, all creditors are bound by the orders of the bankruptcy court, whether they like it or not.
How about the timing of bankruptcy
Do I have to file bankruptcy before the hearing? Before the judgment? Before the lien?
No, bankruptcy can discharge debts regardless of where in the collection process a debt is. Judgments are just as dischargeable as the debt before a lawsuit is filed. Some debts aren’t dischargeable (some taxes, family support, criminal fines), but here, we’re talking about ordinary, unsecured business or personal debts like loans and credit cards.
Bankruptcy can also eliminate recent lien filings and limit or eliminate liens that eat into the value of an exempt asset.
Your to-do list
Get input from a reputable credit counselor or an experienced bankruptcy attorney as soon as you see the problem. As tempting as it is, this is not a discussion best had with a chat bot. Seeing a bankruptcy attorney doesn’t commit you to filing bankruptcy. It does give you a fact-based idea of what kind of relief from your debts is available.
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